SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
________________
For the quarterly period ended September 30, 1998
Commission file number 1-1196
________________
ATLANTIC RICHFIELD COMPANY
(Exact name of registrant as specified in its charter)
_________________
Delaware 23-0371610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
515 South Flower Street
Los Angeles, California 90071
(Address of principal executive offices) (Zip code)
__________________
(213) 486-3511
(Registrant's telephone number, including area code)
__________________
Not Applicable
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of Common Stock, $2.50 par value, outstanding as of
September 30, 1998: 321,220,031.
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
(Restated) (Restated)
(Millions except per share amounts)
<S> <C> <C> <C> <C>
Revenues
Sales and other operating revenues. $ 2,655 $ 3,494 $ 7,755 $10,920
Other revenues. . . . . . . . . . . 146 110 346 358
------ ------ ------ ------
2,801 3,604 8,101 11,278
------ ------ ------ ------
Expenses
Trade purchases . . . . . . . . . . 1,039 1,581 3,096 5,036
Operating expenses. . . . . . . . . 919 808 2,013 2,035
Selling, general and
administrative expenses . . . . . 187 213 572 597
Depreciation, depletion and
amortization. . . . . . . . . . . 546 360 1,334 1,047
Exploration expenses (including
undeveloped leasehold
amortization) . . . . . . . . . . 135 113 410 329
Taxes other than income taxes . . . 121 147 397 487
Interest. . . . . . . . . . . . . . 123 114 326 246
------ ------ ------ ------
3,070 3,336 8,148 9,777
------ ------ ------ ------
Income (loss) before income taxes,
minority interest and
extraordinary item. . . . . . . . . (269) 268 (47) 1,501
Provision (benefit) for taxes on
income. . . . . . . . . . . . . . . (138) 52 (128) 463
Minority interest in earnings of
subsidiaries. . . . . . . . . . . . 7 9 21 31
------ ------ ------ ------
Income (loss) from continuing
operations before extraordinary
item. . . . . . . . . . . . . . . . (138) 207 60 1,007
Income (loss) from discontinued
operations, net of income taxes
of $97 and $186 (1998) and
$(22) and $45 (1997). . . . . . . . (78) 18 98 209
Gain on disposition of ARCO
Chemical stock, (net of income
taxes of $1,540). . . . . . . . . . 1,088 - 1,088 -
Gain on disposition of Lyondell
Petrochemical stock (net of
income taxes of $342) . . . . . . . - 291 - 291
------ ------ ------ ------
Income before extraordinary item . . 872 516 1,246 1,507
Extraordinary loss on
extinguishment of debt (net of
income taxes of $74). . . . . . . . - - - (118)
------ ------ ------ ------
Net income. . . . . . . . . . . . . . $ 872 $ 516 $ 1,246 $ 1,389
====== ====== ====== ======
Earned per Share
Basic
Continuing operations . . . . . . $ (0.43) $ .65 $ 0.18 $ 3.13
Discontinued operations . . . . . 3.14 .96 3.70 1.56
Extraordinary loss. . . . . . . . - - - (.37)
------ ------ ------ ------
Net income . . . . . . . . . . . $ 2.71 $ 1.61 $ 3.88 $ 4.32
====== ====== ====== ======
Diluted
Continuing operations . . . . . . $ (0.42) $ .64 $ .18 $ 3.08
Discontinued operations . . . . . 3.09 .93 3.63 1.52
Extraordinary loss. . . . . . . . - - - (.36)
------ ------ ------ ------
Net income. . . . . . . . . . . . $ 2.67 $ 1.57 $ 3.81 $ 4.24
====== ====== ====== ======
Cash Dividends Paid per Share of
Common Stock. . . . . . . . . . . . $ .7125 $ .7125 $2.1375 $2.1125
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
- 1 -
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED BALANCE SHEET
September 30, December 31,
1998 1997
------------- ------------
(Restated)
(Millions)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents. . . . . . . . . . . $ 1,070 $ 434
Short-term investments . . . . . . . . . . . . 232 222
Accounts receivable. . . . . . . . . . . . . . 975 929
Inventories. . . . . . . . . . . . . . . . . . 502 456
Prepaid expenses and other current assets. . . 307 204
------ ------
Total current assets . . . . . . . . . . . . . 3,086 2,245
------ ------
Investments and long-term receivables:
Investments accounted for on the
equity method. . . . . . . . . . . . . . . . 1,339 763
Other investments and long-term receivables. . 742 1,820
------ ------
2,081 2,583
------ ------
Net property, plant and equipment. . . . . . . . 19,499 13,560
Net assets of discontinued operations. . . . . . 188 2,777
Deferred charges and other assets. . . . . . . . 1,376 1,260
------ ------
Total assets . . . . . . . . . . . . . . . . . . $26,230 $22,425
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
- 2 -
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED BALANCE SHEET
September 30, December 31,
1998 1997
------------- ------------
(Restated)
(Millions)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable . . . . . . . . . . . . . . . . . $ 1,180 $ 1,456
Accounts payable. . . . . . . . . . . . . . . . 1,058 948
Long-term debt due within one year. . . . . . . 126 164
Taxes payable. . . . . . . . . . . . . . . . . 1,893 308
Other . . . . . . . . . . . . . . . . . . . . . 1,046 953
------ ------
Total current liabilities . . . . . . . . . . . 5,303 3,829
------ ------
Long-term debt. . . . . . . . . . . . . . . . . . 4,511 3,619
Deferred income taxes . . . . . . . . . . . . . . 3,605 2,661
Other deferred liabilities and credits. . . . . . 3,997 3,396
Minority interest . . . . . . . . . . . . . . . . 257 240
Stockholders' equity:
Preference stocks . . . . . . . . . . . . . . . 1 1
Common stock. . . . . . . . . . . . . . . . . . 815 807
Capital in excess of par value of stock . . . . 851 640
Retained earnings . . . . . . . . . . . . . . . 7,612 7,054
Treasury stock. . . . . . . . . . . . . . . . . (348) (170)
Accumulated other comprehensive income (loss) . (374) 348
------ ------
Total stockholders' equity. . . . . . . . . . . 8,557 8,680
------ ------
Total liabilities and stockholders' equity. . . . $26,230 $22,425
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
- 3 -
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended
September 30,
-----------------
1998 1997
---- ----
(Restated)
(Millions)
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations. . . . . . . . . . . . $ 60 $ 889
Adjustments to reconcile income to net cash
provided by operating activities:
Extraordinary loss on extinguishment of debt . . . . . - 118
Depreciation, depletion and amortization . . . . . . . 1,334 1,047
Dry hole expense and undeveloped leasehold amortization 194 131
Net gain on asset sales. . . . . . . . . . . . . . . . (56) (42)
Income from equity investments . . . . . . . . . . . . (53) (10)
Dividends from equity investments. . . . . . . . . . . 9 15
Minority interest in earnings of subsidiaries. . . . . 21 31
Noncash provisions greater than cash payments. . . . . 85 20
Changes in working capital accounts. . . . . . . . . . (217) (137)
Other. . . . . . . . . . . . . . . . . . . . . . . . . 5 (111)
------ ------
Net cash provided by operating activities. . . . . . 1,382 1,951
------ ------
Cash flows from investing activities:
Union Texas Petroleum acquisition. . . . . . . . . . . (2,707) -
Additions to fixed assets (including dry hole costs) . (2,477) (1,742)
Net cash (used) provided by short-term investments . . (7) 549
Investment in LUKARCO. . . . . . . . . . . . . . . . . - (201)
Proceeds from sale of ARCO Chemical stock. . . . . . . 4,593 -
Proceeds from asset sales. . . . . . . . . . . . . . . 1,169 60
Investments and long-term receivables. . . . . . . . . (149) (98)
Other. . . . . . . . . . . . . . . . . . . . . . . . . (166) (31)
------ ------
Net cash provided (used) by investing activities . . 256 (1,463)
------ ------
Cash flows from financing activities:
Repayments of long-term debt . . . . . . . . . . . . . (235) (1,511)
Proceeds from issuance of long-term debt . . . . . . . 215 110
Net cash (used) provided by notes payable. . . . . . . (347) 695
Dividends paid . . . . . . . . . . . . . . . . . . . . (688) (680)
Treasury stock purchases . . . . . . . . . . . . . . . (31) (205)
Other. . . . . . . . . . . . . . . . . . . . . . . . . 48 39
------ ------
Net cash (used) by financing activities. . . . . . . (1,038) (1,552)
Cash flows from discontinued operations. . . . . . . . . 37 293
Effect of exchange rate changes on cash. . . . . . . . . (1) (7)
------ ------
Net increase (decrease) in cash and cash equivalents . . 636 (778)
Cash and cash equivalents at beginning of period . . . . 434 1,326
------ ------
Cash and cash equivalents at end of period . . . . . . . $ 1,070 $ 548
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
- 4 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE A. Accounting Policies.
Basis of Presentation.
The foregoing financial information is unaudited and has been prepared
from the books and records of the Company. Certain previously reported
amounts have been restated to conform to classifications adopted in 1998.
In the opinion of the Company, the financial information reflects all
adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations in
conformity with generally accepted accounting principles.
NOTE B. Comprehensive Income.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
SFAS No. 130 established new rules for the reporting of comprehensive
income and its components. Comprehensive income comprises net income plus
all other changes in equity from nonowner sources. ARCO's comprehensive
income for the three- and nine-month periods ended September 30, 1998 and
1997 was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
(Millions)
<S> <C> <C> <C> <C>
Net income . . . . . . . . . . . $ 872 $ 516 $1,246 $1,389
After-tax changes in:
Net unrealized gain (loss)
on investments (a) . . . . . (198) 189 (717) 454
Foreign currency translation
adjustment . . . . . . . . . 38 (34) (12) (131)
Minimum pension liability. . . 7 - 7 -
----- ----- ----- -----
Comprehensive income . . . . . . $ 719 $ 671 $ 524 $1,712
===== ===== ===== =====
(a) Primarily related to changes in the fair value of ARCO's investment in
LUKOIL, which had a fair value of approximately $161 million at
September 30, 1998, compared to a fair value of approximately $1.3
billion and $678 million at December 31, 1997 and 1996, respectively.
The unrealized pretax loss on the LUKOIL investment at September 30,
1998 was $182 million.
</TABLE>
The new disclosure had no impact on ARCO's net income, financial position,
stockholders' equity or cash flows.
Accumulated nonowner changes in equity (accumulated other
comprehensive income) at September 30, 1998 and December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Millions)
<S> <c > <C>
Net unrealized gain (loss) on investments. . . $(111) $ 606
Foreign currency translation adjustment. . . . (216) (204)
Minimum pension liability. . . . . . . . . . . (47) (54)
---- ----
Accumulated other comprehensive income (loss) $(374) $ 348
==== ====
</TABLE>
- 5 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE C. Interim Segment Information.
<TABLE>
<CAPTION>
Three Months Ended September 30, 1998
Other
Exploration Refining & Oper- Unallocated
(Millions) & Production Marketing ations Items Total
------------ ---------- ------ ----------- -----
<S> <C> <C> <C> <C> <C>
Sales and other
operating revenues . . $ 1,518 $1,386 $ 39 $ 3 $ 2,946
Intersegment revenues . (268) - (20) (3) (291)
------ ----- ----- ----- ------
Total . . . . . . . . . $ 1,250 $1,386 $ 19 $ - $ 2,655
====== ===== ===== ===== ======
Income (loss) from
continuing operations. $ (56) $ 108 $ 45 $ (235) $ (138)
Income from discontinued
operations*. . . . . . - - - 1,010 1,010
------ ----- ----- ----- ------
Net income. . . . . . . $ (56) $ 108 $ 45 $ 775 $ 872
====== ===== ===== ===== ======
Segment assets. . . . . $18,762 $3,808 $1,190 $2,470 $26,230
====== ===== ===== ===== ======
December 31, 1997
(Restated)
Segment assets. . . . . $ 13,269 $3,565 $1,149 $4,442 $22,425
======= ===== ===== ===== ======
Three Months Ended September 30, 1997
(Restated)
Other
Exploration Refining & Oper- Unallocated
(Millions) & Production Marketing ations Items Total
------------ ---------- ------ ----------- -----
Sales and other
operating revenues . . $ 2,144 $1,783 $ 42 $ 5 $ 3,974
Intersegment revenues . (459) - (17) (4) (480)
------- ----- ----- ----- ------
Total . . . . . . . . . $ 1,685 $1,783 $ 25 $ 1 $ 3,494
======= ===== ===== ===== ======
Income from continuing
operations . . . . . . $ 288 $ 136 $ 20 $ (237) $ 207
Income from discontinued
operations*. . . . . . - - - 309 309
------- ----- ----- ----- ------
Net income. . . . . . . $ 288 $ 136 $ 20 $ 72 $ 516
======= ===== ===== ===== ======
_____________
* Includes gains on disposition of discontinued operations of $1,088 million
and $291 million for the periods ended September 30, 1998 and 1997,
respectively.
</TABLE>
- 6 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE C. Interim Segment Information (Continued).
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
Other
Exploration Refining & Oper- Unallocated
(Millions) & Production Marketing ations Items Total
------------ ---------- ------ ----------- -----
<S> <C> <C> <C> <C> <C>
Sales and other
operating revenues . . $ 4,424 $ 4,170 $ 118 $ 19 $ 8,731
Intersegment revenues . (892) (12) (60) (12) (976)
------ ------ ----- ----- ------
Total . . . . . . . . . $ 3,532 $ 4,158 $ 58 $ 7 $ 7,755
====== ====== ===== ===== ======
Income from continuing
operations . . . . . . $ 143 $ 224 $ 98 $ (405) $ 60
Income from discontinued
operations*. . . . . . - - - 1,186 1,186
------ ------ ----- ----- ------
Net income. . . . . . . $ 143 $ 224 $ 98 $ 781 $ 1,246
====== ====== ===== ===== ======
Nine Months Ended September 30, 1997
(Restated)
Other
Exploration Refining & Oper- Unallocated
(Millions) & Production Marketing ations Items Total
------------ ---------- ------ ----------- -----
<S> <C> <C> <C> <C> <C>
Sales and other
operating revenues . . $ 7,390 $ 5,106 $ 135 $ 13 $12,644
Intersegment revenues . (1,653) - (59) (12) (1,724)
------ ------ ----- ----- ------
Total . . . . . . . . . $ 5,737 $ 5,106 $ 76 $ 1 $10,920
====== ====== ===== ===== ======
Income from continuing
operations . . . . . . $ 1,061 $ 250 $ 57 $ (361) $ 1,007
Income from discontinued
operations*. . . . . . - - - 500 500
Extraordinary item. . . - - - (118) (118)
------ ------ ----- ----- ------
Net income. . . . . . . $ 1,061 $ 250 $ 57 $ 21 $ 1,389
====== ====== ===== ===== ======
_______________
* Includes gains on disposition of discontinued operations of $1,088 million
and $291 million for the periods ended September 30, 1998 and 1997,
respectively.
</TABLE>
As discussed in Note J, the Company's coal and chemical operations and
investment in Lyondell Petrochemical Company ("Lyondell") have been
reported as discontinued operations. The income from and net assets of
discontinued operations are included with unallocated items in the segment
presentation above. At December 31, 1997, coal operations and ARCO's
investment in Lyondell were included as part of "Other Operations" for
segment purposes and chemical operations were shown as a separate segment.
The prior period has been restated to conform to the current presentation.
- 7 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE D. Acquisition of Union Texas Petroleum Holdings, Inc.
On June 16, 1998, ARCO announced the completion of its tender offer
for all outstanding shares of Union Texas Petroleum Holdings, Inc.'s
("UTP") common stock. ARCO purchased the outstanding common stock of UTP
for approximately $2.5 billion, or $29 per share in cash. ARCO also
purchased in a tender offer 1,649,500 shares of UTP's 7.14% Series A
Cumulative Preferred Stock for approximately $200 million, or $122 per
share in cash. UTP was a U.S.-based, non-integrated oil and gas company
with substantially all of its oil and gas producing operations conducted
outside of the U.S. in the United Kingdom sector of the North Sea,
Indonesia and Pakistan.
The acquisition is being accounted for as a purchase. The results of
operations of UTP are included in the consolidated financial statements of
ARCO as of July 1, 1998. The cost of the acquisition was allocated on the
basis of the estimated fair value of the assets acquired and liabilities
assumed. The following unaudited pro forma summary presents information as
if UTP had been acquired as of the beginning of the Company's fiscal years
1997 and 1998. The pro forma amounts include certain adjustments,
primarily to recognize depreciation, depletion and amortization based on
the allocated purchase price of UTP assets, and do not reflect any benefits
from economies which might be achieved from combining operations. The pro
forma information does not necessarily reflect the actual results that
would have occurred nor is it necessarily indicative of future results of
operations of the combined companies:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1998 1997
---- ----
(Restated)
(Millions)
<S> <C> <C>
Sales and other operating revenues . . . . . . . . . $8,022 $11,456
===== ======
Income from continuing operations before
extraordinary item. . . . . . . . . . . . . . . . . 13 1,081
Income from discontinued operations* . . . . . . . . 1,186 526
Extraordinary loss . . . . . . . . . . . . . . . . . - (118)
----- ------
Net income . . . . . . . . . . . . . . . . . . . . . $1,199 $ 1,489
===== ======
Earned per Share
Basic
Continuing operations. . . . . . . . . . . . . . $ .03 $ 3.36
Discontinued operations. . . . . . . . . . . . . 3.70 1.64
Extraordinary loss . . . . . . . . . . . . . . . - (.37)
----- ------
Net income . . . . . . . . . . . . . . . . . . . $ 3.73 $ 4.63
===== ======
Diluted
Continuing operations. . . . . . . . . . . . . . $ .04 $ 3.30
Discontinued operations. . . . . . . . . . . . . 3.62 1.61
Extraordinary loss . . . . . . . . . . . . . . . - (.36)
----- ------
Net income . . . . . . . . . . . . . . . . . . . $ 3.66 $ 4.55
===== ======
_______________
* Includes gains on disposition of discontinued operations of $1,088
million and $291 million for the periods ended September 30, 1998
and 1997, respectively.
</TABLE>
- 8 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE E. Investments.
At September 30, 1998 and 1997, investments in debt securities were
primarily composed of U.S. Treasury securities and corporate debt
instruments and were included in short-term investments and other
investments and long-term receivables. Maturities generally ranged from
one day to 10 years. Investments in LUKOIL common stock and Zhenhai
Refining and Chemical Company convertible bonds were included in other
investments and long-term receivables. At September 30, 1998, all
investments were classified as available-for-sale; there were no
investments considered held-to-maturity. Investments were reported at fair
value, with unrealized holding gains and losses, net of tax, reported in a
separate component of stockholders' equity.
The following summarizes investments in securities, at September 30:
<TABLE>
<CAPTION>
1998 1997
---- ----
(Millions)
<S> <C> <C>
Aggregate fair value . . . . . . . . . . . $ 951 $2,017
Gross unrealized holding losses. . . . . . 200 1
Gross unrealized holding gains . . . . . . (19) (1,104)
----- -----
Amortized cost . . . . . . . . . . . . . . $1,132 $ 914
===== =====
</TABLE>
Investment activity for the nine-month periods ended September 30 was
as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(Millions)
<S> <C> <C>
Gross purchases. . . . . . . . . . . . . . $14,493 $5,175
Gross sales. . . . . . . . . . . . . . . . 339 1,637
Gross maturities . . . . . . . . . . . . . 13,935 4,494
</TABLE>
Gross realized gains and loss were determined by the specific
identification method and for the three- and nine-month periods ended
September 30, 1998 and 1997, were insignificant.
NOTE F. Inventories.
Inventories at September 30, 1998 and December 31, 1997 comprised the
following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Restated)
(Millions)
<S> <C> <C>
Crude oil and petroleum products . . . . . . $ 235 $ 247
Other products . . . . . . . . . . . . . . . 24 24
Materials and supplies . . . . . . . . . . . 243 185
------- -------
Total. . . . . . . . . . . . . . . . . . . $ 502 $ 456
======= =======
</TABLE>
- 9 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE G. Capital Stock.
Detail of the Company's capital stock was as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Thousands)
<S> <C> <C>
$3.00 Cumulative convertible preference
stock, par $1 . . . . . . . . . . . . . . . $ 52 $ 56
$2.80 Cumulative convertible preference
stock, par $1 . . . . . . . . . . . . . . . 580 616
Common stock, par $2.50 . . . . . . . . . . . 814,582 806,800
------- -------
Total . . . . . . . . . . . . . . . . . . . $815,214 $807,472
======= =======
</TABLE>
NOTE H. Capitalization of Interest.
Interest expense excluded capitalized interest of $29 million and $11
million, respectively, for the three-month periods ended September 30, 1998
and 1997, and $66 million and $25 million, respectively, for the nine-
month periods ended September 30, 1998 and 1997.
NOTE I. Income Taxes.
Provision (benefit) for taxes on income:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
(Restated) (Restated)
(Millions)
<S> <C> <C> <C> <C>
Federal:
Current . . . . . . . . . . . . $ (41) $125 $ (86) $398
Deferred. . . . . . . . . . . . (66) (87) (17) (78)
---- --- ---- ---
(107) 38 (103) 320
---- --- ---- ---
Foreign:
Current . . . . . . . . . . . . 19 18 44 89
Deferred. . . . . . . . . . . . (40) (22) (76) (34)
---- --- ---- ---
(21) (4) (32) 55
---- --- ---- ---
State:
Current. . . . . . . . . . . . . 6 35 17 105
Deferred . . . . . . . . . . . . (16) (17) (10) (17)
---- --- ---- ---
(10) 18 7 88
---- --- ---- ---
Total. . . . . . . . . . . . . $(138) $ 52 $(128) $463
==== === ==== ===
</TABLE>
- 10 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
Note I. Income Taxes (continued).
Reconciliation of provision for taxes on income with tax at federal
statutory rate:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------
1998 1997
----------------- -----------------
Percent Percent
of of
Pretax Pretax
Amount Income Amount Income
------ ------- ------ -------
(Restated)
(Millions)
<S> <C> <C> <C> <C>
Income (loss) before income
taxes, minority interest and
extraordinary item. . . . . . . . $(269) 100.0 $ 268 100.0
==== ===== ===== =====
Tax at federal statutory rate. . . $ (94) (35.0) $ 93 35.0
Increase (reduction) in taxes
resulting from:
Subsidiary stock transactions. . (7) (2.6) (11) (4.1)
Taxes on foreign income in
excess of statutory rate. . . . 4 1.5 (9) (3.4)
State income taxes (net of
federal effect) . . . . . . . . (6) (2.2) 11 4.1
Tax credits. . . . . . . . . . . (28) (10.4) (26) (9.7)
Other. . . . . . . . . . . . . . (7) (2.6) (6) (2.5)
---- ----- ----- -----
Provision (benefit) for taxes
on income . . . . . . . . . . . . $(138) (51.3) $ 52 19.4
==== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1998 1997
----------------- -----------------
Percent Percent
of of
Pretax Pretax
Amount Income Amount Income
------ ------- ------ -------
(Restated)
(Millions)
<S> <C> <C> <C> <C>
Income (loss) before income
taxes, minority interest and
extraordinary item. . . . . . . . . $ (47) 100.0 $1,501 100.0
==== ===== ===== =====
Tax at federal statutory rate. . . . $ (16) (35.0) $ 525 35.0
Increase (reduction) in taxes
resulting from:
Subsidiary stock transactions. . . (64) (136.2) (55) (3.7)
Taxes on foreign income in
excess of statutory rate. . . . . 44 93.6 24 1.6
State income taxes (net of
federal effect) . . . . . . . . . 5 10.6 57 3.8
Tax credits. . . . . . . . . . . . (87) (185.1) (77) (5.1)
Other. . . . . . . . . . . . . . . (10) (20.2) (11) (0.8)
---- ----- ---- -----
Provision (benefit) for taxes on
income. . . . . . . . . . . . . . . $(128) (272.3) $ 463 30.8
==== ===== ==== =====
</TABLE>
- 11 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE J. Discontinued Operations.
On June 1, 1998, ARCO disposed of its U.S. coal operations in a
transaction with Arch Coal. Operations disposed of included the Black
Thunder and Coal Creek mines in Wyoming, the West Elk mine in Colorado, and
ARCO's 65% interest in three mines in Utah. The Colorado and Utah mines
were sold outright. ARCO contributed its Wyoming coal operations and Arch
Coal transferred various of its coal operations into a new joint venture
that is 99% owned by Arch Coal and 1% owned by ARCO.
The Company expects to dispose of its Australian coal operations as
well. In the third quarter of 1998 ARCO recorded a $90 million provision
for the estimated loss on the disposal of the U.S. and Australian coal
assets. Net proceeds from the sale of U.S. operations have been deferred
in net assets of discontinued operations until the disposition of Australian
coal assets is completed and the actual net loss can be determined.
In July 1998, ARCO tendered its 80,000,001 shares of ARCO Chemical
Company common stock to Lyondell for $57.75 per share, or total cash proceeds
of approximately $4.6 billion. ARCO recorded an after-tax gain of
approximately $1.1 billion in the third quarter of 1998 from the sale of
the shares.
In September 1997, ARCO disposed of its 49.9% equity interest in
Lyondell. The petrochemical business of UTP will be disposed of and has
been reported as a discontinued operation as well.
Revenues and net income from discontinued operations was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
ARCO Chemical . . . . . . . . . $290 $928 $1,990 $2,783
Coal operations . . . . . . . . $ 61 $135 $ 293 $ 497
UTP petrochemical . . . . . . . $ 23 $ - $ 23 $ -
Net income:
ARCO Chemical . . . . . . . . . $ 12 $(31) $ 178 $ 37
Coal operations* . . . . . . . (90) 6 (80) 53
Lyondell. . . . . . . . . . . . - 43 - 119
UTP petrochemical . . . . . . . - - - -
--- --- ----- -----
$(78) $ 18 $ 98 $ 209
=== === ===== =====
_______________
* The amount for the three-months ended September 30, 1998 is a provision for
loss on disposal of coal assets.
</TABLE>
- 12 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE K. Earned Per Share.
The information necessary for the calculation of earned per share is
as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
Income Shares Per share Income Shares Per share
------ ------ --------- ------ ------ ---------
(Millions, except
per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Income from continuing
operations . . . . . . . $ (138) $207
Less: Preference stock
dividends* . . . . . . . - -
----- ---
Income from continuing
operations available to
common stockholders -
basic EPS. . . . . . . . (138) 321.2 $(0.43) 207 320.7 $0.65
===== =====
Income from discontinued
operations . . . . . . . 1,010 321.2 3.14 309 320.7 0.96
----- ===== ----- --- ===== ----
Net income available to
common stockholders -
basic EPS. . . . . . . . 872 321.2 $ 2.71 516 320.7 $1.61
===== ====
Effect of dilutive securities:
Contingently issuable
shares (primarily
options) . . . . . . . . 2.5 3.0
Convertible preference
stock. . . . . . . . . . - 3.5 - 3.8
----- ----- --- -----
Net income available to
common stockholders and
assumed conversions -
diluted EPS. . . . . . . 872 327.2 $ 2.67 516 327.5 $1.57
===== =====
Less: income from discon-
tinued operations. . . . 1,010 327.2 3.09 309 327.5 0.93
----- ===== ----- --- ===== ----
Income from continuing
operations available to
common stockholders and
assumed conversions -
diluted EPS . . . . . . $ (138) 327.2 $(0.42) $207 327.5 $0.64
===== ===== ===== === ===== ====
_______________
* Dividend rounds to zero for the three-month periods presented.
</TABLE>
- 13 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE K. Earned Per Share (continued).
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
Income Shares Per share Income Shares Per share
------ ------ --------- ------ ------ ---------
(Millions, except
per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Income from continuing
operations . . . . . . $ 60 $1,007
Less: Preference stock
dividends. . . . . . . (2) (2)
----- -----
Income from continuing
operations available
to common stockholders -
basic EPS. . . . . . . 58 320.9 $0.18 1,005 321.3 $3.13
===== =====
Income from discontinued
operations . . . . . . 1,186 320.9 3.70 500 321.3 1.56
===== ---- =====
Income before
extraordinary item
available to common
stockholders -
basic EPS. . . . . . . 1,244 1,505
Extraordinary item. . . - (118) 321.3 (0.37)
----- ----- ===== ----
Net income available to
common stockholders -
basic EPS. . . . . . . 1,244 320.9 $3.88 1,387 321.3 $4.32
==== ====
Effect of dilutive
securities:
Contingently issuable
shares (primarily
options) . . . . . . . 2.8 2.0
Convertible preference
stock. . . . . . . . . 2 3.6 2 3.9
----- ----- ----- -----
Net income available to
common stockholders
and assumed conver-
sions - diluted EPS. . 1,246 327.3 $3.81 1,389 327.2 $4.24
===== =====
Extraordinary item. . . - 118 327.2 0.36
Income before ----- ----- ===== ----
extraordinary item
available to common
stockholders and
assumed conversions -
diluted EPS. . . . . . 1,246 1,507
Less: Income from dis-
continued operations . 1,186 327.3 3.63 500 327.2 1.52
----- ===== ---- ----- ===== ====
Income from continuing
operations available to
common stockholders and
assumed conversions -
diluted EPS. . . . . . $ 60 327.3 $0.18 $1,007 327.2 $3.08
===== ===== ==== ===== ===== ====
</TABLE>
- 14 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE L. Supplemental Income Statement Information.
Taxes other than income taxes comprised the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
(Restated) (Restated)
(Millions)
<S> <C> <C> <C> <C>
Production/severance . . . . . $ 54 $ 82 $173 $268
Property . . . . . . . . . . . 39 37 109 107
Other. . . . . . . . . . . . . 28 28 115 112
--- --- --- ---
Total. . . . . . . . . . . . $121 $147 $397 $487
=== === === ===
</TABLE>
NOTE M. Supplemental Cash Flow Information.
Following is supplemental cash flow information for the nine months
ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1998 1997
---- ----
(Restated)
(Millions)
<S> <C> <C>
Gross sales and maturities of short-term investments . $ 171 $ 1,696
Gross purchases of short-term investments. . . . . . . (178) (1,147)
------- -------
Net cash (used) provided by short-term investments . . $ (7) $ 549
======= =======
Gross proceeds from issuance of notes payable. . . . . $ 12,096 $ 5,300
Gross repayments of notes payable. . . . . . . . . . . (12,443) (4,605)
------- -------
Net cash (used) provided by notes payable . . . . . . $ (347) $ 695
Gross noncash provisions charged to income . . . . . . $ 416 $ 393
Reserve reversal from partial tax audit settlements. . - (145)
Cash payments of previously accrued items. . . . . . . (331) (228)
------- -------
Noncash provisions greater than cash payments. . . . . $ 85 $ 20
======= =======
</TABLE>
Interest paid during the nine-month periods ended September 30, 1998
and 1997 was $318 million and $450 million, respectively.
Income taxes paid during the nine-month periods ended September 30,
1998 and 1997 were $169 million and $669 million, respectively.
- 15 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE M. Supplemental Cash Flow Information (continued).
Excluded from the Consolidated Statement of Cash Flows for the nine
months ended September 30, 1998 was the issuance of 2,725,030 shares of
ARCO common stock to a consolidated subsidiary in exchange for certain
property, plant and equipment owned by the subsidiary. The transaction was
recorded at fair market value.
In conjunction with the acquisition of UTP, liabilities were assumed
as follows:
<TABLE>
<CAPTION>
(Millions)
<S> <C>
Fair value of assets acquired . . . . . . $3,745
Cash paid . . . . . . . . . . . . . . . . 2,707
-----
Liabilities assumed . . . . . . . . . . $1,038
=====
</TABLE>
Excluded from the Consolidated Statement of Cash Flows for the nine
months ended September 30, 1997 was ARCO's use of Lyondell common stock to
redeem its 9% Exchangeable Notes with an outstanding principal amount of
$988 million.
Changes in working capital accounts for the nine-month periods ended
September 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1998 1997
---- ----
(Restated)
(Millions)
<S> <C> <C>
Changes in working capital - Increase (decrease)
to cash:
Accounts receivable. . . . . . . . . . . . . . . $ 71 $ 396
Inventories. . . . . . . . . . . . . . . . . . . (18) (73)
Accounts payable . . . . . . . . . . . . . . . . 22 (310)
Other working capital. . . . . . . . . . . . . . (292) (150)
---- ----
Total. . . . . . . . . . . . . . . . . . . . . $(217) $(137)
==== ====
</TABLE>
NOTE N. Other Commitments and Contingencies.
ARCO has commitments, including those related to the acquisition,
construction and development of facilities, all made in the normal course
of business.
Following the March 1989 EXXON VALDEZ oil spill, numerous lawsuits
seeking compensatory and punitive damages and injunctions were filed by the
state of Alaska, the United States and private plaintiffs against Exxon,
Alyeska Pipeline Service Company ("Alyeska") and Alyeska's owner companies
(including ARCO, which owns approximately 22%). Alyeska and its owner
companies have settled the civil damage claims by federal and state
governments and the lawsuits by private plaintiffs. Certain issues
relating to the liability for the spill remain unresolved between the Exxon
companies, on the one hand, and Alyeska and its owner companies.
- 16 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE N. Other Commitments and Contingencies (continued).
ARCO and former producers of lead pigments have been named as
defendants in cases filed by a municipal housing authority, two purported
classes and several individuals seeking damages and injunctive relief as a
consequence of the presence of lead-based paint in certain housing units.
ARCO is also the subject of or party to a number of other pending or
threatened legal actions.
The State of Montana is seeking recovery from ARCO of $767 million
based on alleged injuries to natural resources resulting from mining and
mineral processing operations formerly operated by Anaconda. ARCO and the
State have lodged with the court an agreement to settle for $135 million
the State's natural resource damages at all but three sites. That
agreement is contingent upon court approval of that agreement and a related
settlement agreement between the State, ARCO, the federal government and
the Salish and Kootenai Tribes.
ARCO is subject to other loss contingencies pursuant to federal, state
and local environmental laws and regulations. These require ARCO to remove
or mitigate the effects on the environment of the disposal or release of
certain chemical, mineral and petroleum substances at various sites,
perform certain restoration work on these sites and to pay damages for loss
of use and non-use values. ARCO is currently participating in
environmental assessments and cleanups under these laws at federal
Superfund and state-managed sites, as well as other clean-up sites.
ARCO may in the future be involved in additional environmental assessments
and cleanups, including restoration of natural resources and damages for
loss of use and non-use values. The amount of future costs will depend on
such factors as the unknown nature and extent of contamination, the unknown
timing, extent and method of the remedial actions which may be required and
the determination of ARCO's liability in proportion to other responsible
parties. Environmental loss contingencies include claims for personal
injuries allegedly caused by exposure to toxic materials manufactured or
used by ARCO.
ARCO continues to estimate the amount of these costs in periodically
establishing reserves based on progress made in determining the magnitude
of remediation costs, experience gained from sites on which remediation has
been completed, the timing and extent of remedial actions required by the
applicable governmental authorities and an evaluation of the amount of
ARCO's liability considered in light of the liability and financial where-
withal of the other responsible parties. At September 30, 1998, the
environmental remediation accrual was $882 million. As the scope of ARCO's
obligations becomes more clearly defined, there may be changes in these
estimated costs, which might result in future charges against ARCO's
earnings.
ARCO's environmental remediation accrual covers federal Superfund and
state-managed sites as well as other clean-up sites, including service
stations, refineries, terminals, chemical facilities, third-party
landfills, former nuclear processing facilities, sites associated with
discontinued operations and sites formerly owned by ARCO. ARCO has been
named a potentially responsible party ("PRP") for 133 sites. The number of
PRP sites in and of itself is not a relevant measure of liability, because
the nature and extent of environmental concerns varies by site and ARCO's
share of responsibility varies from sole responsibility to very little
responsibility. ARCO reviews all of the PRP sites, along with other sites
as to which no claims have been asserted, in estimating the amount of the
accrual. ARCO's future costs at these sites could exceed the amount
accrued by as much as $500 million.
- 17 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE N. Other Commitments and Contingencies (continued).
Approximately 55% of the reserve related to sites associated with
ARCO's discontinued operations, primarily mining activities in the states
of Montana, Utah and New Mexico. Another significant component related to
currently and formerly owned chemical, nuclear processing, and refining and
marketing facilities, and other sites which received wastes from these
facilities. The remainder related to other sites with reserves ranging
from $1 million to $10 million per site. No one site represents more than
10% of the total reserve. Substantially all amounts accrued are expected
to be paid out over the next five to six years.
Claims for recovery of remediation costs already incurred and to be
incurred in the future have been filed against various insurance companies
and other third parties. Many of these claims have been resolved. ARCO has
neither recorded any asset nor reduced any liability in connection with
unresolved claims.
Although any ultimate liability arising from any of the matters
described herein could result in significant expenses or judgments that, if
aggregated and assumed to occur within a single fiscal period, would be
material to ARCO's results of operations, the likelihood of such occurrence
is considered remote. On the basis of management's best assessment of the
ultimate amount and timing of these events, such expenses or judgments are
not expected to have a material adverse effect on ARCO's consolidated
financial statements.
The operations and consolidated financial position of ARCO continue to
be affected from time to time in varying degrees by domestic and foreign
political developments as well as legislation, regulations and litigation
pertaining to restrictions on production, imports and exports, tax
increases, environmental regulations, cancellation of contract rights and
expropriation of property. Both the likelihood of such occurrences and
their overall effect on ARCO vary greatly and are not predictable.
These uncertainties are part of a number of items that ARCO has taken
and will continue to take into account in periodically establishing
reserves.
Note O. Subsequent Event.
On October 31, 1998, the Company sold to Vastar Resources, Inc.
("Vastar") 100% of the capital stock of Vastar Offshore, Inc. ("VOI"),
formerly known as Western Midway Company for approximately $170 million in
cash and the assumption of $300 million of VOI's existing indebtedness by
Vastar. The purchase price has been subsequently reduced by approximately
$35 million to reflect post-closing adjustment items. ARCO owns an 82.2%
interest in Vastar.
- 18 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Third Quarter 1998 vs. Third Quarter 1997
Consolidated Earnings
Net income increased in the 1998 third quarter to $872 million, up
from the $516 million reported in the third quarter of 1997. However,
operating results excluding special items declined to $73 million, compared
to $431 million in the 1997 third quarter. This decline primarily
reflected lower crude oil prices.
The 1998 third quarter included a net after-tax benefit of $799
million for special items, consisting of a gain of $1,088 million from the
sale of ARCO's interest in ARCO Chemical Company ("ARCO Chemical"),
partially offset by various charges. The charges were for future
environmental remediation and reclamation related to both current
operations and to natural resource damage liabilities in the state of
Montana associated with previously discontinued mining operations, a
provision for estimated net loss on divestment of coal operations and an
impairment writedown of California heavy crude oil properties.
The 1997 third quarter included a net after-tax benefit of $85 million
for special items. Special item benefits included an after-tax gain of
approximately $291 million from the settlement of 9% Notes due September
15, 1997, with Lyondell Petrochemical Company ("Lyondell") common stock, in
addition to tax-related adjustments. The benefits were partially offset by
charges for restructuring and other actions at ARCO Chemical of $95
million, net of tax and minority interest, and charges of approximately
$140 million after tax for future environmental remediation and reclamation
related to both current operations and to natural resource damage liabilities
in the state of Montana associated with previously discontinued mining
operations.
After-tax Segment Earnings
<TABLE>
<CAPTION>
1998 1997 (Restated)
---------------------------- ---------------------------
Less: Less:
Special Special
Items Items
Net (Charge) Operating Net (Charge) Operating
Income Benefit Results Income Benefit Results
------ -------- --------- ------ -------- ---------
(Millions)
<S> <C> <C> <C> <C> <C> <C>
Exploration and
production. . . . $ (56) $ (94) $ 38 $288 $ 22 $266
Refining and
marketing . . . . 108 - 108 136 - 136
Other operations . 45 17 28 20 (3) 23
Interest expense . (92) - (92) (78) - (78)
Other unallocated
expenses. . . . . (143) (122) (21) (159) (125) (34)
----- ----- --- --- ---- ---
Income (loss)
from continuing
operations. . . . (138) (199) 61 207 (106) 313
Income (loss)
from discontinued
operations. . . . (78) (90) 12 18 (100) 118
Gain on disposition
of stock* . . . . 1,088 1,088 - 291 291 -
----- ----- --- --- ---- ---
Net income . . . $ 872 $ 799 $ 73 $516 $ 85 $431
===== ===== === === ==== ===
*1998: Approximate 82% interest in ARCO Chemical; 1997: 49.9% interest in
Lyondell.
</TABLE>
- 19 -
<PAGE>
As the result of the sale of ARCO's 80 million shares of ARCO Chemical
common stock in July 1998, the 1998 results from operations reflect the
chemical operations as discontinued along with the worldwide coal
operations discontinued in the first quarter 1998. In September 1997, ARCO
disposed of its 49.9% interest in Lyondell. The 1997 results have been
restated to reflect all of these operations as discontinued.
Exploration and Production
ARCO's operating results from worldwide oil and gas exploration and
production operations in 1998 were significantly impacted by lower crude
oil prices. While the Union Texas Petroleum ("UTP") properties purchased
in 1998 contributed to an 11% increase in production volumes, the revenues
from that production were more than offset by the depreciation, depletion
and operating costs associated with those properties. The 1998 third
quarter included special items primarily related to the writedown of the
California heavy oil holdings. The 1997 third quarter included a net
benefit from special items related to a United Kingdom tax rate change
and a gain on asset sale, partially offset by a leasehold writedown.
Average Oil and Gas Prices
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
U.S.
Petroleum liquids - per barrel (bbl)
Alaska . . . . . . . . . . . . . . . . . . . . $ 7.84 $13.26
Lower 48, including Vastar . . . . . . . . . . $10.47 $15.77
Composite average price. . . . . . . . . . . . $ 8.76 $14.10
Natural gas - per thousand cubic feet (mcf). . . $ 1.75 $ 1.87
International
Petroleum liquids - per bbl. . . . . . . . . . . $10.96 $17.30
Natural gas - per mcf. . . . . . . . . . . . . . $ 2.29 $ 2.51
Indonesia liquefied natural gas (LNG)- per mcf . $ 2.29 $ -
</TABLE>
Petroleum Liquids and Natural Gas Production
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net Production*
U.S.
Petroleum liquids - bbl/day
Alaska . . . . . . . . . . . . . . . . . . . 334,600 359,200
Vastar . . . . . . . . . . . . . . . . . . . 44,800 49,600
Other Lower 48 . . . . . . . . . . . . . . . 136,400 130,800
--------- ---------
Total. . . . . . . . . . . . . . . . . . . 515,800 539,600
Natural gas - mcf/day. . . . . . . . . . . . . 1,163,500 1,066,700
Barrels of oil equivalent - (BOE)/day. . . . . 709,700 717,400
International
Petroleum liquids - bbl/day. . . . . . . . . . 165,500 80,800
Natural gas - mcf/day. . . . . . . . . . . . . 883,500 760,200
BOE/day. . . . . . . . . . . . . . . . . . . . 312,800 207,500
Total net production - BOE/day . . . . . . . . 1,022,500 924,900
__________
* Includes ARCO's share of production from equity affiliates. For BOE
calculation, natural gas is converted at the ratio of 6 mcf to 1 barrel
of liquid.
</TABLE>
- 20 -
<PAGE>
The increase in international petroleum liquids and natural gas
production primarily reflected 120,100 barrels of oil equivalent per day
contributed from UTP properties purchased at the end of the second quarter
of 1998. In addition, petroleum liquids production increased at the Rhourde
el Baguel field in Algeria. Production from United Kingdom natural gas
fields decreased by approximately 90 million cubic feet per day, as a result
of the timing of gas takes.
The decline in U.S. petroleum liquids production primarily reflected a
24,600 barrel-per-day decrease in Alaskan production due to natural field
decline. The increase in U.S. natural gas production primarily reflected a
10% increase in Vastar Resources, Inc. ("Vastar") production levels from
offshore and onshore fields.
In a transaction consummated in October 1998, ARCO exchanged
California heavy crude oil properties currently producing approximately
37,000 barrels per day for Gulf of Mexico exploration acreage and properties,
production from which is expected to average 180 million cubic feet of gas
equivalent, net of divestitures, in 1999.
Refining and Marketing
The decline in earnings in 1998 primarily resulted from lower light
product margins. Margins were lower because West Coast gasoline prices fell
more than crude oil prices in the 1998 third quarter. The increased
gasoline sales volumes reflected increased volumes at existing ARCO retail
outlets. The decline in jet fuel sales reflected both a change in the
production mix and a turnaround at ARCO's Cherry Point refinery during
third quarter 1998.
West Coast Petroleum Products Sales
<TABLE>
<CAPTION>
1998 1997
---- ----
Volumes (Barrels/day)
<S> <C> <C>
Gasoline. . . . . . . . . . . . . . . . . . . . . 304,900 298,800
Jet . . . . . . . . . . . . . . . . . . . . . . . 97,100 118,400
Distillate. . . . . . . . . . . . . . . . . . . . 83,500 76,100
Other . . . . . . . . . . . . . . . . . . . . . . 75,400 79,300
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . 560,900 572,600
======= =======
Other Operations
The 1998 and 1997 results included earnings from Lower 48 pipeline and
aluminum operations. The increase in 1998 earnings included special items
of $17 million from the sale of pipeline assets. The improved operating
results primarily reflected increased earnings from the Seaway pipeline
joint venture.
Discontinued Operations
After-tax earnings from discontinued operations in the 1998 third
quarter totaled $12 million before provision of $90 million for an
estimated loss on the divestment of coal properties. Discontinued
operations included ARCO's interest in ARCO Chemical for part of the
quarter and Australian coal operations.
- 21 -
<PAGE>
In the 1997 third quarter, ARCO's discontinued operations earned $118
million before provision of $100 million in restructuring charges for ARCO
Chemical and coal operations. Discontinued operations included ARCO's
interest in ARCO Chemical and Lyondell, as well as domestic and Australian
coal operations.
Gain on Disposition of ARCO Chemical Stock
In the third quarter of 1998, ARCO sold its entire interest in ARCO
Chemical (80,000,001 shares of common stock) to Lyondell, an unrelated third
party, for $4.6 billion and recorded a net after-tax gain of $1,088 million.
Previously, the Company entered into a ten-year purchase agreement with
ARCO Chemical providing for the delivery of fixed quantities of methyl
tertiary butyl ether ("MTBE") at a fixed price approximating the then-market
price. Over the last several years the spot market price of MTBE has
declined; however, provision for loss on the contract was not required since
ARCO Chemical was a consolidated, majority-owned subsidiary of the Company.
The above-market MTBE contract value was reflected in the sale price
of the Company's interest in ARCO Chemical. As a result, ARCO has deferred
$313 million of the pre-tax gain on sale of the ARCO Chemical interest.
This deferral represents the estimated discounted present value of the
difference over the remaining term of the contract between the contract
price and the spot market price for MTBE.
The deferral will be amortized over the remaining term of the contract
on a straight-line basis. The amortization and recognition of imputed
interest will have a net favorable impact of approximately $17 million
before tax per quarter on earnings of the Refining and marketing segment
through the end of the contract in 2001.
Consolidated Revenues
</TABLE>
<TABLE>
<CAPTION>
1998 1997
---- ----
(Restated)
(Millions)
<S> <C> <C>
Sales and other operating revenues
Exploration and production . . . . . . . . . . . $1,518 $2,144
Refining and marketing . . . . . . . . . . . . . 1,386 1,783
Other. . . . . . . . . . . . . . . . . . . . . . 42 47
Intersegment eliminations. . . . . . . . . . . . (291) (480)
----- -----
Total. . . . . . . . . . . . . . . . . . . . . $2,655 $3,494
===== =====
</TABLE>
The decline in exploration and production sales revenues resulted
primarily from lower petroleum liquids prices and lower natural gas
marketing activity, partially offset by an 11% increase in production
volumes. Effective September 1, 1997, Vastar contributed the majority of
its natural gas marketing operations to a joint venture with the Southern
Company. Primarily as a result of the transfer of those operations,
total natural gas sales volumes decreased to 2.5 billion cubic feet per
day in the 1998 third quarter, down from 3.6 billion cubic feet per day in
the 1997 third quarter.
Refining and marketing sales revenues primarily decreased because of
lower light product prices.
- 22 -
<PAGE>
Consolidated Expenses
Trade purchases were lower primarily as a result of the Vastar-
Southern joint venture and lower crude oil prices. Natural gas purchase
volumes decreased to .5 billion cubic feet per day in the 1998 third
quarter, down from 1.8 billion cubic feet per day in the 1997 third
quarter.
Operating expenses were higher in 1998 primarily as a result of the
inclusion of UTP operations in the third quarter 1998 results and higher
charges for future environmental remediation, compared to the same period
in 1997.
Selling, general and administrative expenses in 1998 primarily
reflected lower personnel expenses at corporate headquarters.
Higher depreciation, depletion and amortization in 1998 reflected the
writedown of the California heavy oil holdings and the inclusion of UTP
operations in the third quarter 1998 results, compared to the third quarter
of 1997.
The lower taxes other than income taxes in 1998 primarily resulted
from the impact of lower crude oil prices on U.S. production taxes.
Income Taxes
The Company had a tax benefit in the 1998 third quarter reflecting the
Company's loss from continuing operations in the current period. The
Company had an effective tax rate of 19.4% in the 1997 third quarter. An
effective tax rate in 1997 lower than the statutory rate primarily
reflected various tax credits and other benefits.
Nine-Month Period Ended September 30, 1998 vs. Same Nine-Month Period 1997
Consolidated Earnings
Net income decreased to $1,246 million, down from the $1,389 million
reported for the first nine months of 1997. Operating results excluding
special items declined to $505 million, compared to $1,304 million for the
first nine months of 1997. The decline in earnings primarily reflected
lower crude oil prices.
Special items for the first nine months of 1998 included the net after-
tax benefit of $799 million included in the third quarter 1998 results, as
well as net charges of $58 million for special items in the first two quarters
of 1998.
Special items for the first nine months of 1997 included the net after-
tax benefit of $85 million included in the third quarter 1997 results.
In addition, the first nine months of 1997 included an extraordinary
loss of $118 million after tax related to early retirement of debt. The
impact of the extraordinary loss was offset by the reversal of reserves for
taxes and related interest which resulted primarily from the partial
resolution of certain federal and state income tax audits.
- 23 -
<PAGE>
After-tax Segment Earnings
<TABLE>
<CAPTION>
1998 1997 (Restated)
--------------------------- ---------------------------
Less: Less:
Special Special
Items Items
Net (Charge) Operating Net (Charge) Operating
(Millions) Income Benefit Results Income Benefit Results
------ --------- --------- ------ --------- ---------
(s) <C> <C> <C> <C> <C> <C>
Exploration and
production . . . $ 143 $ (169) $312 $1,061 $ 22 $1,039
Refining and
marketing. . . . 224 - 224 250 - 250
Other operations. 98 17 81 57 (9) 66
Interest expense. (236) - (236) (176) 89 (265)
Other unallocated
expenses . . . . (169) (117) (52) (185) (90) (95)
----- ----- --- ----- --- -----
Income (loss)
from continuing
operations . . . 60 (269) 329 1,007 12 995
Income (loss)
from discontinued
operations . . . 98 (78) 176 209 (100) 309
Gain on disposition
of stock* . . . 1,088 1,088 - 291 291 -
Extraordinary item - - - (118) (118) -
----- ----- --- ----- --- -----
Net income. . . $1,246 $ 741 $505 $1,389 $ 85 $1,304
===== ===== === ===== === =====
*1998: Approximate 82% interest in ARCO Chemical; 1997: 49.9% interest in
Lyondell.
</TABLE>
Consolidated Revenues
<TABLE>
<CAPTION>
1998 1997
---- ----
(Restated)
(Millions)
<S> <C> <C>
Sales and other operating revenues
Exploration and production . . . . . . . . . . . $ 4,424 $ 7,390
Refining and marketing . . . . . . . . . . . . . 4,170 5,106
Other. . . . . . . . . . . . . . . . . . . . . . 137 148
Intersegment eliminations. . . . . . . . . . . . (976) (1,724)
------ ------
Total. . . . . . . . . . . . . . . . . . . . . $ 7,755 $10,920
====== ======
</TABLE>
The decline in exploration and production sales revenues for the first
nine months of 1998 resulted primarily from lower petroleum liquids prices
and natural gas marketing activity. Effective September 1, 1997, Vastar
contributed the majority of its natural gas marketing operations to a joint
venture with the Southern Company. Primarily as a result of the transfer
of those operations, total natural gas sales volumes decreased to 2.4
billion cubic feet per day for the first nine months of 1998, down from 4.1
billion cubic feet per day for the same period in 1997.
For the first nine months of 1998 refining and marketing sales
revenues primarily decreased because of lower refined products prices.
- 24 -
<PAGE>
Consolidated Expenses
Trade purchases for the nine months ended September 30, 1998 were
lower primarily as a result of lower crude oil prices and the Vastar-
Southern joint venture. Natural gas purchase volumes decreased to .5
billion cubic feet per day in 1998, down from 2.2 billion cubic feet per
day in the same period in 1997.
Operating expenses declined during the first nine months of 1998,
compared to the same period in 1997 primarily as a result of decreased
natural gas marketing activity and other cost reductions in the exploration
and production operations of the Company.
The increased depreciation, depletion and amortization expense for the
first nine months of 1998 included a writedown of the California heavy oil
holdings, a writedown of a North Sea natural gas field and the inclusion of
UTP operations in the third quarter 1998.
The higher exploration expense for the first nine months of 1998
reflected increased geological and geophysical and dryhole expense in
international operations and higher dryhole expense at Vastar.
The lower taxes other than income taxes in 1998 primarily resulted
from the impact of lower crude oil prices on U.S. production taxes.
For the nine months ended September 30, 1998, the higher interest
expense reflected the absence of the reversal of reserves for tax-related
interest in the second quarter of 1997. Excluding the prior year reserve
reversal, interest expense was down almost $65 million in the first nine
months of 1998 as a result of debt retirements and capitalized interest.
Income Taxes
The Company had a tax benefit for the first nine months of 1998
reflecting the Company's loss from continuing operations for the first nine
months of 1998. The Company had an effective tax rate of 30.8% for the
first nine months of 1997. An effective tax rate in 1997 lower than the
statutory rate primarily reflected various tax credits and the net effect
of affiliate stock transactions.
Average Oil and Gas Prices
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1998 1997
---- ----
<S> <C> <C>
U.S.
Petroleum liquids - per bbl
Alaska . . . . . . . . . . . . . . . . . . . $ 8.59 $15.36
Lower 48, including Vastar. . . . . . . . . . $11.31 $17.03
Composite average price . . . . . . . . . . . $ 9.55 $15.90
Natural gas - per mcf . . . . . . . . . . . . . $ 1.85 $ 1.97
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1998 1997
---- ----
<S> <C> <C>
International
Petroleum liquids - per bbl . . . . . . . . . . $11.62 $18.36
Natural gas - per mcf . . . . . . . . . . . . . $ 2.51 $ 2.64
Indonesia liquid natural gas. . . . . . . . . . $ 2.29 $ -
</TABLE>
- 25 -
<PAGE>
Petroleum Liquids and Natural Gas Production
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net Production*
U.S.
Petroleum liquids - bbl/day
Alaska . . . . . . . . . . . . . . . . . . . 346,100 377,300
Vastar . . . . . . . . . . . . . . . . . . . 48,600 51,100
Other Lower 48 . . . . . . . . . . . . . . . 138,500 127,600
--------- ---------
Total. . . . . . . . . . . . . . . . . . . 533,200 556,000
Natural gas - mcf/day. . . . . . . . . . . . . 1,125,000 1,058,700
Barrels of oil equivalent - (BOE)/day. . . . . 720,700 732,400
International
Petroleum liquids - bbl/day. . . . . . . . . . 111,500 76,800
Natural gas - mcf/day. . . . . . . . . . . . . 793,100 830,800
BOE/day. . . . . . . . . . . . . . . . . . . . 243,700 215,300
Total net production - BOE/day . . . . . . . . 964,400 947,700
_______________
* Includes ARCO's share of production from equity affiliates. For
BOE calculation, natural gas is converted at the ratio of 6 mcf
to 1 barrel of liquid.
</TABLE>
Liquidity and Capital Resources
<TABLE>
<CAPTION>
1998
----
(Millions)
<S> <C>
Cash flow provided (used) by:
Operations. . . . . . . . . . . . . . . . . . . . . $ 1,392
Investing activities. . . . . . . . . . . . . . . . $ 256
Financing activities. . . . . . . . . . . . . . . . $(1,038)
</TABLE>
The net cash used by investing activities in the first nine months of
1998 included expenditures of $4.6 billion from the disposition of ARCO
Chemical stock and the proceeds from other net asset sales, primarily U.S.
coal assets, of $1.1 billion offset by expenditures for the purchase of
UTP for $2.7 billion and additions to fixed assets of $2.5 billion.
The net cash provided by financing activities in the first nine months
of 1998 primarily included a decrease of $347 million in the Company's
short-term debt position offset by dividend payments of $688 million.
Cash and cash equivalents and short-term investments totaled $1.3
billion and short-term borrowings were $1.2 billion at the end of the third
quarter of 1998. Primarily as a result of the income taxes payable
associated with the sale of ARCO Chemical stock, the Company is in a
working capital deficit position of approximately $2.2 billion at September
30, 1998. It is expected that future cash requirements for working
capital, capital expenditures, dividends and debt repayments will come from
cash generated from operating activities, existing cash balances, short-
term borrowing and future financings.
- 26 -
<PAGE>
Impact of the Year 2000 Issue
The Year 2000 issue arises from computer programs and embedded
computer chips being unable to distinguish between the year 1900 and the
year 2000, resulting in system failures or miscalculations that cause
operational disruptions.
In addressing the Year 2000 issue, ARCO divided the project into three
components: (1) computing integrity, which covers all information
technology systems, including telecommunications/network support (software
and hardware) and third-party hardware and software not in ARCO's plant
facilities, (2) plant integrity, which covers all hardware and software
responsible for the movement of product in ARCO's various plant facilities,
and (3) commercial integrity, which covers all external third-party
relationships, non-ARCO operated joint ventures and third-party operated
production, including the Trans Alaska Pipeline System ("TAP"). ARCO is
managing the project internally and is working to assure Year 2000 integrity
by conducting internal audits. The Company has also hired outside con-
sultants to do certain minor audits. The Company's implementation of the
Year 2000 Project has not impacted other technology projects.
The Company has developed the following guidelines to achieve Year 2000
compliance: (1) Inventory preparation - the Company will first prepare an
inventory of items for each material asset covering the components; (2)
Prioritize inventory - the Company will then evaluate each item for its
potential to interfere with critical operations such that failure would
result in a material adverse effect on ARCO's operations; (3) Option assess-
ment - the Company will evaluate various remediation strategies to mitigate
Year 2000 effects including repair, replacement and retirement; (4) Implement
appropriate options - the Company will execute the appropriate selected
remediation strategy; (5) Continued monitoring - the Company will institute
processes after remediation has been completed for ensuring continued Year
2000 compliance.
The criticality of Year 2000 inventory items is evalulated, in
descending order, based on the following considerations: if a failure
attributable to the Year 2000 were to occur, a determination will be made
of its impact on (1) health and safety of ARCO employees; (2) the environ-
ment; (3) ARCO's revenues; and/or (4) ARCO's business relationships. In
addition, these Year 2000 items are being evaluated in the context of ARCO's
existing business interruption plans, which contain provisions for opera-
tional disruptions caused by disasters such as earthquakes and hurricanes
which may have effects comparable to those that may be caused by Year 2000
failures.
At the date hereof, the Company estimates that it will have achieved
the percentage completion of remediation of material Year 2000 items
affecting its exploration and production and refining and marketing segments
as follows: (1) Computing integrity is expected to be 90% completed by year
end 1998, with 100% achieved during the second quarter of 1999. (2) Plant
integrity is expected to be 50% completed by year end 1998, with 100%
achieved during the second quarter of 1999. (3) Commercial integrity is
expected to be 25% completed by year end 1998, with 100% achieved by the
end of the second quarter of 1999. In the event that these completion goals
are not met, or the remediation work is unsuccessful in avoiding material
Year 2000 problems, the Company believes that its existing business
disruption plans will adequately cover any material business interruptions
resulting from material non-compliant Year 2000 items.
The total cost associated with required modifications to achieve Year
2000 compliance is not expected to be material to the Company's financial
position. The approximate total cost of the Year 2000 project is $25 million.
This estimate does not include ARCO's potential share of Year 2000 costs that
may be incurred by partnerships and joint ventures in which the Company
participates but is not the operator. The total amount expended through
September 30, 1998 was approximately $14 million.
- 27 -
<PAGE>
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely impact the
Company's results of operations or financial condition. As a result of the
general uncertainty inherent in the Year 2000 problem, the Company is unable
to determine at this time whether the consequences of Year 2000 failures will
have a material impact on the Company's results of operations or financial
condition. Completion of the Company's Year 2000 compliance guidelines, if
implemented as scheduled, is expected to reduce the possibility of material
disruptions of normal operations.
The foregoing "Impact of the Year 2000 Issue" contains forward-looking
statements that should be read in conjunction with the disclosures under the
heading "Safe Harbor Cautionary Statement."
Safe Harbor Cautionary Statement
ARCO desires to take advantage of the "safe harbor" provisions contained
in Section 27A of the Securities Act of 1933, as amended (the "1933 Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the "1934
Act"), and is including this statement herein in order to do so.
The discussion above contains forward-looking statements (which may
come within the meaning of Section 27A of the 1933 Act and Section 21E of
the 1934 Act). Readers are cautioned that these statements are based upon
certain assumptions, including but not limited to assumptions as to the
availability of trained personnel and the ability to timely identify and
locate all relevant Year 2000 issues which might affect the Company and
the assumption that representations by third parties are correct. The
Company also assumes that the Company's repair and replacement programs
will be timely completed and that certain vendors and contractors will
timely perform as promised. Actual results could differ materially if the
Company's assumptions are incorrect. Due to the general uncertainty as to
the Year 2000 readiness of third parties and the interconnection of business,
the Company cannot ensure its ability to resolve its Year 2000 problems in
a timely and cost effective manner. The failure to do so could affect the
Company's operations and business or expose it to third-party liability.
Statements of Financial Accounting Standards Not Yet Adopted
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." SOP
98-1 is effective for financial statements for fiscal years beginning after
December 15, 1998. SOP 98-1 establishes criteria for determining which
costs of developing or obtaining internal-use computer software should be
charged to expense and which should be capitalized. The Company has
determined that the adoption of SOP 98-1 will not have a material effect on
ARCO's financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of
Start-up Activities." SOP 98-5 is effective for financial statements for
fiscal years beginning after December 15, 1998. SOP 98-5 states that costs
of start-up activities, including organization costs, should be expensed as
incurred. The Company has determined that the adoption of SOP 98-5 will
not have a material effect on ARCO's financial position or results of
operations.
- 28 -
<PAGE>
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS No. 133 requires
companies to adopt its provisions for all fiscal quarters of all fiscal
years beginning after June 15, 1999. Earlier application of all of the
provisions of SFAS No. 133 is permitted, but the provisions cannot be
applied retroactively to financial statements of prior periods. SFAS
standardizes the accounting for derivative instruments by requiring that
an entity recognize those items as assets or liabilities in the statement
of financial position and measure them at fair value. The Company has not
yet completed evaluating the impact of the provisions of SFAS No. 133.
_______________________________
Management cautions against projecting any future results based on
present earnings levels because of economic uncertainties, the extent and
form of existing or future governmental regulations and other possible
actions by governments.
- 29 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
1. Reference is made to the disclosure on page 12 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 (hereinafter,
the "1997 Form 10-K Report"), on page 21 of the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1998 (the
"First Quarter Form 10-Q Report") and on page 28 of the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1998 (the "Second Quarter Form 10-Q Report") regarding Montana v.
ARCO (Case No. CV-83-317-HLN-PGH). On June 19, 1998, ARCO and the
State lodged with the court a conditional consent decree to settle for
$135 million all but a portion of the State's natural resource damage
("NRD") claims and for $80 million claims for cleanup at the Stream
Side Tailings Operable Unit ("SSTOU"). The NRD claims of the State
not settled are for restoration at three sites for which a final
cleanup plan has not been ordered. As part of the settlement, ARCO,
the State, the United States, and the Tribes expect to lodge with the
court a second consent decree setting forth the terms of the settlement
of claims for cleanup and also settling claims for past costs and a
civil penalty at the SSTOU. That consent decree will also provide
for settlement of United States and Tribal NRD claims in the Clark
Fork Basin. All of these settlements are subject to court approval.
2. Reference is made to the disclosure on page 12 of the Company's 1997
Form 10-K Report and on page 28 of the Second Quarter Form 10-Q Report
regarding the case of U.S. v. ARCO, et al. (Case No. CV-89-039-BU-
PGH). The proposed settlements in Montana v. ARCO, described above,
will resolve the claims and counterclaims in U.S. v. ARCO pertaining
to the SSTOU and will provide a framework for possible future
settlements of the remaining claims.
3. Reference is made to the disclosure on pages 12 and 13 of the
Company's 1997 Form 10-K Report regarding a complaint entitled In re
Hanford Nuclear Reservation Litigation (CY-91-3015-AAM). On August
21, 1998, the court issued a ruling that, if upheld on appeal, should
result in the dismissal of ARCO and its subsidiary, Atlantic Richfield
Hanford Company, from the case.
4. Reference is made to the disclosure on page 14 of the Company's 1997
Form 10-K Report and on page 28 of the Second Quarter Form 10-Q Report
regarding Siemens Solar Industries v. Atlantic Richfield Company (Case
No. 94-109092). On October 27, 1998, the New York Court of Appeals
denied Siemens' motion for leave to appeal the summary judgment,
concluding this lawsuit in ARCO's favor.
5. Reference is made to the disclosure on page 14 of the Company's 1997
Form 10-K Report and on page 21 of the First Quarter Form 10-Q Report"
regarding ARCO, et al. v. UNOCAL (Case No. 95-2379-KMW-JRx). On
September 29, 1998, the court issued a judgment in favor of UNOCAL for
$10.3 million (including prejudgment interest) against ARCO for
infringing gallons during the first five months of production and for
$1.5 million joint and several against ARCO and the other five
refiners for UNOCAL's attorneys fees. ARCO has appealed the decision
to the Court of Appeals for the Federal Circuit.
6. Reference is made to the disclosure on page 28 of the Company's Second
Quarter Form 10-Q Report regarding ARCO's receipt of a Finding of
Violation from EPA Region IX for alleged violations at the Los Angeles
Refinery of the federal New Source Performance Standards established
for refineries under the Clean Air Act. Settlement discussions with
EPA continue.
- 30 -
<PAGE>
Item 1. Legal Proceedings (continued).
7. On June 7, 1994, a purported class action was filed by several
individuals in United States District Court in Pittsburgh,
Pennsylvania against ARCO and Babcock & Wilcox Company ("B & W") on
behalf of persons "estimated to be in the thousands" who lived or
worked in Apollo and Parks Township, Pennsylvania, and areas downwind
of those places, from 1957 to the present. The suit, Hall, et al. v.
Babcock & Wilcox Company, et al. (Case No. 94-0951), claims that the
plaintiffs and alleged class members were exposed to releases of
radioactive and other toxic substances from two nuclear materials
processing facilities that have contaminated the air, soil, and
surface and ground water in those communities. The suit seeks damages
for death and personal injury, diminution in property values, costs of
decontamination of property, injunctive relief requiring defendants to
establish a fund for medical monitoring, and punitive damages. ARCO
has been sued as the former owner of Nuclear Materials and Equipment
Corporation ("NUMEC"), the original owner and operator of the Apollo
and Parks Township facilities from March 1967 to November 1971. On
September 17, 1998, the jury in a trial of eight "test-case" plaintiffs'
claims returned a verdict of $33.7 million jointly and severally
against ARCO and B & W and another $2.8 million just against B & W.
On September 24, 1998, these eight test-case plaintiffs withdrew their
claim for punitive damages against ARCO. ARCO and B & W have filed
motions for judgment in their favor or for a new trial. The claims of
other plaintiffs remain for trial or other disposition.
8. On October 22, 1998, ARCO was served with a complaint filed in the
Superior Court of California for the County of Sacramento entitled
Cal-Tex Citrus Juice, et al. v. Atlantic Richfield Company, et al.
(Case No. 98AS05227). The complaint is purportedly on behalf of a
class of all direct or indirect purchasers of California diesel fuel
between March 19, 1996 and December 31, 1997 against all California
refiners of California diesel fuel. The complaint alleges violations
of various state statutes by the defendants' alleged conspiracy to
fix prices of California diesel fuel and seeks treble damages and
restitution.
9. Reference is made to the Company's 1997 Form 10-K Report for
information on other legal proceedings matters reported herein.
- 31 -
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 Amendment No. 4 to the Atlantic Richfield Company
Supplementary Executive Retirement Plan, effective as of
August 1, 1997, filed herewith.
10.2 Amendment No. 4 to the Atlantic Richfield Company Executive
Deferral Plan, effective as of January 1, 1997, filed herewith.
10.3 Amendment No. 5 to the Atlantic Richfield Company Annual
Incentive Plan, effective as of July 28, 1997, filed herewith.
10.4 Amendment No. 6 to the Atlantic Richfield Company Annual
Incentive Plan, effective as of July 28, 1997, filed herewith.
10.5 Amendment No. 10 to the Atlantic Richfield Company 1985
Executive Long-Term Incentive Plan, effective as of July 28,
1997, filed herewith.
10.6 Amendment No. 11 to the Atlantic Richfield Company 1985
Executive Long-Term Incentive Plan, effective as of July 28,
1997, filed herewith.
10.7 Amendment No. 6 to Atlantic Richfield Company Special
Termination Allowance Plan which contains the current change
of control provisions applicable to the Company's executive
management team, including its five most highly compensated
executive officers.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The following Current Reports on Form 8-K were filed during the
quarter ended September 30, 1998 and through the date hereof.
Date of Report Item No. Financial Statements
-------------- -------- --------------------
September 30, 1998 5 None
- 32 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ATLANTIC RICHFIELD COMPANY
(Registrant)
/s/ ALLAN L. COMSTOCK
Dated: November 10, 1998 ____________________________
(signature)
Allan L. Comstock
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
- 33 -
AMENDMENT NO. 4
TO
ATLANTIC RICHFIELD COMPANY
SUPPLEMENTARY EXECUTIVE RETIREMENT PLAN
__________________________
Pursuant to the power of amendment reserved therein, the
following amendment is hereby made to the Atlantic Richfield
Company Supplementary Executive Retirement Plan (the "Plan")
effective as of August 1, 1997.
Article IX, Section 6 of the Plan is amended to read as follows:
"Section 6. Change of Control
6.1 During an Anticipatory Change of Control as defined in
the Supplemental Executive Benefit Plans Trust Agreement between
Atlantic Richfield Company and State Street Bank and Trust
Company, as adopted on July 1, 1994 and amended from time-to-
time thereafter, and incorporated herein by reference,
notwithstanding any other provision to the contrary in this Plan,
the following provisions shall apply:
(a) No new participants or beneficiaries may commence
participation in the Plan; and
(b) No new elections of distribution options or any other
participant elections may be made.
6.2 Upon the occurrence of a Change of Control as defined
in the Supplemental Executive Benefit Plans Trust Agreement
between Atlantic Richfield Company and State Street Bank and
Trust Company, as adopted on July 1, 1994 and amended from time-
to-time thereafter, and incorporated herein by reference,
notwithstanding any other provision to the contrary in this Plan,
the following provisions shall apply:
(a) The Plan shall be terminated with respect to all
Participants who were employed on or after October 1, 1990 and
who either are in receipt of an annuity or who are entitled to a
benefit, a portion of which is attributable to the Supplemental
Benefit calculated under Article II of the Plan.
(b) Benefits of Participants described in Subparagraph (a)
shall be treated as follows:
(1) With respect to any Participant or Beneficiary in
receipt of an annuity form of payment, such annuity shall be
converted to an Actuarial Equivalent Lump Sum in accordance with
actuarial factors established by the Independent Plan
Administrator, with verification by an independent actuary.
- 1 -
<PAGE>
(2) With respect to any Participant who is not in
receipt of an annuity and a portion of whose benefit is
attributable to the Supplemental Benefit calculated under Article
II of the Plan, the total accrued benefit under the Plan as of
the date of the Change of Control shall be calculated by the
Independent Plan Administrator, based upon records and
information, including benefit calculations, provided by the
Company prior to a Change of Control, and the Participant shall
be entitled to such accrued benefit.
(3) The Actuarial Equivalent Lump Sum value of the
accrued benefit calculated under the preceding subparagraph shall
also be calculated using the actuarial factors established under
Subparagraph (1) above with respect to Participants:
(i) Who were employed by the Company on the date
of the Change of Control or were employed by the Company on or
after October 1, 1990; and
(ii) Who have yet to commence a distribution.
(c) Participants and Beneficiaries described under
Subparagraph (a) shall be permitted to elect disposition of the
benefit, in accordance with procedures established by the
Independent Plan Administrator, as follows:
(1) Single payment of the Actuarial Equivalent Lump
Sum value calculated under Subparagraph (b) above in cash as soon
as possible following the Change of Control; or
(2) Transfer of benefit obligations from the Plan
equaling the Actuarial Equivalent Lump Sum value calculated under
Subparagraph (b) above to the Atlantic Richfield Executive Deferral
Plan as soon as possible following the Change of Control, under which
such benefit obligations shall be maintained as a new deferral
account, payable in accordance with an election made pursuant to
procedures established by the Independent Plan Administrator
under the Atlantic Richfield Executive Deferral Plan.
(d) The Independent Plan Administrator appointed pursuant
to the Trust Agreement described above shall assume full
responsibility of the Plan Administrator under Article VII of the
Plan, subject to any approvals, concurrences or authority
reserved to the Advisory and Claims Committee established under
the Trust Agreement described above."
Executed this 5th day of November, 1998.
ATTEST: ATLANTIC RICHFIELD COMPANY
BY: /s/ Armineh Simonian BY: /s/ JOHN H. KELLY
--------------------- ------------------------
John H. Kelly
Senior Vice President
Human Resources
- 2 -
AMENDMENT NO. 4
TO
ATLANTIC RICHFIELD COMPANY
EXECUTIVE DEFERRAL PLAN
__________________________
Pursuant to the power of amendment reserved therein, the
following amendment is hereby made to the Atlantic Richfield
Company Executive Deferral Plan (the "Plan") effective as of
January 1, 1997, except as otherwise indicated.
1. Article I, Section 3.1 of the Plan is amended to read as
follows:
"3.1 Account or Deferred Compensation Account means a
separate bookkeeping account maintained by the Company
for each Employee and which measures and determines the
amounts to be paid to the Employee under the Plan for
each component of Deferred Compensation. Separate
subaccounts will be established for separate components
of Deferred Compensation, as applicable, deferred by an
Employee."
2. Article II, Section 1 of the Plan is amended to read as
follows:
"Section 1. Eligibility and Participation
1.1 Eligibility. Eligibility to make a Deferral
Commitment shall be limited to Employees who (a) (i) are
eligible to receive an Award, and (ii) either are classified
in the executive payroll grade structure of the Company, or
are Grades 7, 8, 9 or 10 in the regular payroll grade
structure of the Company, (b) are a Participant in the
Executive Supplementary Savings Plan or (c) have been
designated as eligible by a specific resolution of the
Administrative Committee upon recommendation of the Senior
Vice President, Human Resources of the Company."
3. Article III, Section 3(b) of the Plan is amended to read as
follows:
"(b) Guaranteed Interest Rate. Absent a Change of Control,
in no event will the Interest Rate applicable to (i) a
Participant's Account during the Participant's lifetime
(including any Transferred Accounts from the Atlantic
Richfield Annual Incentive Plan) be less than the
Citibank Base Rate, or (ii) Transferred Accounts from
the Atlantic Richfield Executive Supplementary Savings
Plan be less than the Money Market Rate of interest
under the Capital Accumulation Plan for the period of
time commencing on the date of transfer and ending on
the date the Accounts are paid."
- 1 -
<PAGE>
4. Effective August 1, 1997, Section 11 of Article IV of the
Plan is amended to read as follows:
"Section 11. Change Of Control
11.1 (a) During an Anticipatory Change of Control, as
defined in the Supplemental Executive Benefit Plans Trust
Agreement between Atlantic Richfield Company and State
Street Bank and Trust Company, as adopted on July 1, 1994
and amended from time-to-time thereafter, and incorporated
herein by reference, notwithstanding any other provision to
the contrary in this Plan, the following provisions shall
apply:
(i) No new participants or beneficiaries may
commence participation in the Plan; and
(ii) No new elections of distribution options or
any other participant elections may be made.
(b) Subject to the provisions of Section 11.1(c)
hereof, upon a Change of Control as defined in the
Supplemental Executive Benefit Plans Trust Agreement between
Atlantic Richfield Company and the State Street Bank and
Trust Company, as adopted on July 1, 1994 and amended from
time-to-time thereafter, and incorporated herein by
reference, notwithstanding any other provision to the
contrary in this Plan, the following provisions shall apply:
(i) The Independent Plan Administrator appointed
under the Trust Agreement shall assume all responsibilities
relating to Administration under Article Vl of the Plan with
the exception that the disposition of any claim for benefits
by a Participant or Beneficiary, following an initial
determination by the Independent Plan Administrator, shall
be the sole responsibility of the Advisory and Claims
Committee established under the Trust Agreement, described
above.
(ii) No individual may commence participation
following the Change of Control.
(iii) No deferrals relating to previously
elected Deferral Commitments may be made following the
Change of Control, except that any Salary or Executive
Supplementary Savings Plan amounts earned through the date
of the Change of Control during the relevant Plan year shall
be credited in accordance with the prior deferral election.
- 2 -
<PAGE>
(iv) Any amounts determined by the Independent
Plan Administrator to be transferable to this Plan from the
Atlantic Richfield Company Supplementary Executive
Retirement Plan pursuant to an eligible Participant's
election under such plan following a Change of Control shall
be accepted by the Independent Plan Administrator and
credited to the affected Participant's Deferral Account.
(c) Time and form of distribution of Deferred
Compensation Accounts following a Change of Control:
(i) Following a Change of Control, any prior
elections with respect to the form of payment of any
Deferred Compensation Account shall be canceled and the
Participant will be given the option to elect, in accordance
with procedures established by the Independent Plan
Administrator, including the time and manner of election,
distribution of the Participant's Deferred Compensation
Account in one of the following forms.
(1) Single payment, constituting all or a
portion (selected in percentages and/or amounts prescribed
by the Independent Plan Administrator) of the Deferred
Compensation Account, as elected by the Participant. If a
portion of the Deferred Compensation Account is distributed
in a single payment, the remainder will be distributed under
one of the following installment methods, as elected by the
Participant:
(2) Five annual installments
(3) Ten annual installments
(4) Fifteen annual installments
(5) Twenty annual installments
Absent such election within the time period
determined by the Independent Plan Administrator, the
Deferred Compensation Account will be distributed to the
Participant in a single payment.
(ii) Following a Change of Control, any prior
elections with respect to the time of payment of any
Deferred Compensation Account shall be canceled and the
Participant will be given the option to elect, in accordance
with procedures established by the Independent Plan
Administrator, described above, distribution of the Deferred
Compensation Account elected under Subparagraph (ii), at one
the following times:
(1) A single payment will be distributed to
the Participant as soon as possible following the Change of
Control;
- 3 -
<PAGE>
(2) The Participant may elect commencement
of any of the installment schedules elected under
Subparagraph (i) above in the January immediately following
the Change of Control or any succeeding January, provided
that in no event may distributions continue after the end of
the 20th calendar year following a Change of Control."
Executed this 5th day of November, 1998.
ATTEST: ATLANTIC RICHFIELD COMPANY
BY: /s/ Armineh Simonian BY: /s/ JOHN H. KELLY
-------------------- -----------------------
JOHN H. KELLY
Senior Vice President
Human Resources
- 4 -
AMENDMENT NO. 5
TO
ATLANTIC RICHFIELD COMPANY
ANNUAL INCENTIVE PLAN
___________________________
Pursuant to authority contained in resolutions adopted by the
Board of Directors on July 28, 1997, the following amendment is
hereby made to the Atlantic Richfield Company Annual Incentive
Plan (the "Plan"), effective July 28, 1997.
1. Paragraphs 2(m), 2(y) and 2(z) of the Plan are amended to
read as follows:
"(m) "Company" means ARCO and its Subsidiaries.
(y) "Salary Grade" means the classification assigned to
an Employee by ARCO.
(z) "Subsidiary" means any corporation, the majority of
the voting stock of which, or any partnership or joint
venture, the majority of the profits interest or capital
interest of which, is owned directly or indirectly by ARCO or
a Corporation, as applicable."
2. Subsections (bb), (cc), (dd), (ee), (ff), (gg), (hh), (ii) and
(jj) are added to Section 2 of the Plan to read as follows:
"(bb) "Anticipatory Change of Control" means (1) the
execution of an agreement or a written document which, if the
subject thereof were consummated, would result in a Change of
Control; (2) a public announcement by any Person, including
ARCO, of an intent to take an action(s) which, if
consummated, would result in a Change of Control; or (3) the
delivery of a signed, written statement to the Trustee of the
Change of Control Trust and ARCO's Independent Auditor by the
Chief Financial Officer of ARCO and General Counsel of ARCO
that an Anticipatory Change of Control is in effect, provided
that, with respect to any of the above three circumstances,
the Anticipatory Change of Control shall not be effective until
approved by either the Board or the Executive Committee of the
Board.
(cc) "ARCO" means Atlantic Richfield Company, its
successors and assigns.
(dd) "Benefit Trigger Window" means the 24-month period
commencing on the date that a Change of Control occurs.
(ee) "Change of Control" means:
- 1 -
<PAGE>
(1) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of ARCO (a "Business
Combination"), unless, in each case, following such Business
Combination:
(i) All or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the then outstanding shares of common stock
(the "Outstanding Common Stock") of ARCO and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors (the
"Outstanding Voting Securities") of ARCO immediately prior to
such Business Combination beneficially own, directly or
indirectly, more than 60 percent of, respectively, the then
Outstanding Common Stock and the combined voting power of the
then Outstanding Voting Securities entitled to vote generally
in the election of directors, as the case may be, of the
corporation resulting from such Business Combination
(including, without limitation, a corporation which, as a
result of such transaction, owns ARCO or all or substantially
all of ARCO's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination, of
the Outstanding Common Stock and Outstanding Voting
Securities, as the case may be;
(ii) No Person (excluding any corporation
resulting from such Business Combination or any employee
benefit plan (or related trust) of ARCO or such corporation
resulting from such Business Combination) beneficially owns,
directly or indirectly, 25 percent or more of, respectively,
the then Outstanding Common Stock of such corporation
resulting from such Business Combination or the combined
voting power of the then Outstanding Voting Securities of
such corporation, except to the extent that such ownership
existed immediately prior to the Business Combination; and
(iii) At least a majority of the members
of the board of directors of the corporation resulting from
such Business Combination were members of the Incumbent Board
at the time of the execution of the initial agreement, or of
the action of the Board, providing for such Business
Combination; or
(2) The acquisition by any Person of beneficial
ownership (within the meaning of Rule 13d-3 or Rule 13d-5
promulgated under the Exchange Act) of 25 percent or more of
either (i) the Outstanding Common Stock of ARCO or (ii) the
Outstanding Voting Securities of ARCO; provided, however,
that for purposes of this Subsection (2), the following shall
not constitute a Change of Control: (A) any acquisition by
any employee benefit plan (or related trust) sponsored or
maintained by ARCO or any corporation controlled by ARCO; (B)
any acquisition by ARCO or any increase in beneficial
ownership resulting solely from an acquisition by ARCO; (C)
any acquisition by any corporation pursuant to a Business
Combination which complies with clauses (i), (ii) and (iii)
of Subsection (1); or (D) any acquisition directly from ARCO
pursuant to a transaction (other than a Business Combination)
approved by the Board after July 28, 1997; and provided,
further, that in any event, without regard to the manner in
which the level of ownership is attained, the ownership by
- 2 -
<PAGE>
any Person of 40 percent or more of the Outstanding Common
Stock of ARCO or Outstanding Voting Securities of ARCO shall
constitute a Change of Control; or
(3) Individuals who, as of July 28, 1997,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to such date whose election, or nomination for
election by ARCO's stockholders, was approved by a vote of at
least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board, except that any such
individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with
respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by
or on behalf of a Person shall not be considered an Incumbent
Director; or
(4) Approval by the stockholders of ARCO of a
complete liquidation or dissolution of ARCO.
(ff) "Change of Control Trust" means the trust
established by ARCO to provide for the payment of any
benefits, in whatever form is required, under this Plan on
and after a Change of Control.
(gg) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(hh) "Person" means any individual, corporation, firm,
partnership, governmental body, entity or group and shall
include any person within the meaning of 13(d)(3) or
14(d)(2) of the Exchange Act.
(ii) "Special Plan Administrator" means the entity
designated in the Change of Control Trust, which shall have
full administrative powers under Section 3 of this Plan on
and after a Change of Control, including, but not limited to,
all interpretive and decision powers reserved to the
Committee or the Subcommittee prior to a Change of Control.
(jj) "Surviving Entity" means the entity which exists
following a Change of Control and which employs the individuals who
were Employees eligible for participation under Subsection 2(v) and
Section 4 immediately prior to the Change of Control."
3. Sections 6 through 10 are renumbered as Sections 7 through 11
and a new Section 6 is added to the Plan to read as follows:
"Section 6. Change of Control
(a) If an Employee in Grade classification E0 through
9 (or the equivalent thereof) as of the date of a Change of
Control terminates employment from
- 3 -
<PAGE>
the Surviving Entity after the Change of Control under any of
the circumstances described in Subsection 6(b), a cash payment
shall be made to such Employee as described in Subsection 6(c).
(b) Termination of Employment shall mean termination of
employment during the Benefit Trigger Window by the Surviving Entity,
other than for cause, and with respect to Grades E0 through E3 shall
also mean the Employee's voluntary termination following the Surviving
Entity's request to accept a (1) demotion to a lesser job, (2) reduction
in Base Salary plus Salary Grade Target Award described under Subsection
5(b) of ten percent or more, or (3) relocation of the principal place of
work which would constitute a deductible moving expense under 217 of the
Internal Revenue Code. With respect to Grades E4, 10 and 9, only
Clauses (2) and (3) shall apply.
(c) In the event of a Termination of Employment under Subsection
6(b), as soon as possible following such termination, the Employee will
be paid an Award equal to the Salary Grade Target Award described under
Subsection 5(b) multiplied by a fraction, the numerator of which is the
number of months (or fraction thereof) the Employee was employed during
the Performance Year prior to termination of employment in conjunction
with the Change of Control and the denominator of which is twelve."
4. Subsection 9(a) of the Plan is amended to read as follows:
"(a) ARCO intends to establish a grantor trust to aid in
accumulating the amounts necessary to pay any amount awarded
to a Participant for a Performance Year, or an Award deferred
pursuant to Section 7 or any interest credited thereon. All
Awards, and any interest credited thereon, shall be paid from
the general funds of the Company to the extent not paid from
the grantor trust. Under no circumstances shall a Participant
or other person have any interest whatsoever in any
particular property or assets of the Company as a result of
this Plan or an Award made thereunder."
5. Section 10 of the Plan is amended to read as follows:
"Section 10. Amendment, Suspension or Termination
(a) Except as provided under Subsections 10(b) and (c),
the Board may suspend, terminate or amend the Plan.
Amendment, suspension or termination of the Plan shall not
alter the amount or payment of an Award made prior to such
amendment, suspension or termination.
(b) The Plan may not be amended during an Anticipatory
Change of Control, except that the Board may amend the Plan
during such a period as it may deem reasonably necessary,
upon advice of counsel, to further the interest of the
Company and its shareholders regarding any legal requirements
and, provided further, that any such amendment which reduces,
or could reduce, the value of any
- 4 -
<PAGE>
benefit of a Participant, as determined in the sole discretion
of the Special Plan Administrator, shall provide substantially
equivalent value in replacement thereof to the Participant.
(c) The Plan may not be amended or terminated on or
after a Change of Control until all payments that may be due
pursuant to Subsection 6(c) of the Plan, as determined in the
sole discretion of the Special Plan Administrator of the
Change of Control Trust, have been made."
Executed this 27th day of March, 1998
ATTEST ATLANTIC RICHFIELD COMPANY
/s/ ARMINEH AIMONIAN /s/ JOHN H. KELLY
BY: ______________________ BY: _________________________
John H. Kelly
Senior Vice President
Human Resources
AMENDMENT NO. 6
TO
ATLANTIC RICHFIELD COMPANY
ANNUAL INCENTIVE PLAN
___________________________
Pursuant to the power of amendment reserved therein, the following
amendment is hereby made to the Atlantic Richfield Company Annual
Incentive Plan (the "Plan") effective as of July 28, 1997.
1. Section 2, Subsections (f), (j), (l), (bb), (ff) and (ii) of
the Plan are amended to read as follows:
"(f) "Award" means an annual award to a participant
pursuant to Section 7 of the Plan."
"(j) "Board" means the Board of Directors of ARCO
established by the Articles of Incorporation of ARCO."
"(l) "Committee" means the Organization and Compensation
Committee of the Board."
"(bb) "Anticipatory Change of Control" means (1) the
execution of an agreement or a written document which, if the
subject thereof were consummated, would result in a Change of
Control; (2) a public announcement by any Person, including
ARCO, of an intent to take an action(s) which, if
consummated, would result in a Change of Control; or (3) the
delivery of a signed, written statement to the Trustee of the
Change of Control Trust and ARCO's Independent Auditor by the
Chief Financial Officer of ARCO and General Counsel of ARCO
that an Anticipatory Change of Control is in effect, provided
that, with respect to any of the above three circumstances,
the Anticipatory Change of Control shall not be effective
until approved by either the Board or the Executive Committee
of the Board."
"(ff) "Change of Control Trust" means the trust
established by ARCO to provide for the payment of any
benefits, in whatever form is required, under this Plan on
and after a Change of Control."
"(ii) "Special Plan Administrator" means the entity
designated in the Change of Control Trust, which shall have
full administrative powers under Section 3 of this Plan on
and after a Change of Control, including, but not limited to,
all interpretive and decision powers reserved to the
Committee prior to a Change of Control."
2. Section 2, Subsection (jj) is deleted and a new Subsection
(jj) is added to Section 2 of the Plan to read as follows:
(jj) "Executive Committee" means the Executive Committee
of the Board as established by the Board of Directors of
ARCO."
- 1 -
<PAGE>
3. Section 6, Subsections (a) and (b) of the Plan are amended to
read as follows:
"(a) If an Employee in Grade classification E0, E1, E2,
E3, E4,10 and 9 (or the equivalent thereof) as of the date of
a Change of Control terminates employment during the Benefit
Trigger Window under any of the circumstances described in
Subsection 6(b), a cash payment shall be made to such
Employee as described in Subsection 6(c).
(b) Termination of Employment shall mean termination of
employment during the Benefit Trigger Window, other than due
to voluntary termination or for cause, and with respect to
Grades E0, E1, E2 and E3 shall also mean the Employee's
voluntary termination following management's request to
accept a (1) demotion to a lesser job, (2) reduction in Base
Salary plus Salary Grade Target Award described under
Subsection 5(b) of ten percent or more, or (3) relocation of
the principal place of work which would constitute a
deductible moving expense under 217 of the Internal Revenue
Code. With respect to Grades E4, 10 and 9, only Clauses (2)
and (3) shall apply."
Executed this 5th day of November, 1998
ATTEST ATLANTIC RICHFIELD COMPANY
/s/ ARMINEH SIMONIAN /s/ JOHN H. KELLY
BY:______________________ BY: _________________________
John H. Kelly
Senior Vice President
Human Resources
AMENDMENT NO. 10
TO
ATLANTIC RICHFIELD COMPANY
1985 EXECUTIVE LONG-TERM INCENTIVE PLAN
___________________________
Pursuant to authority contained in resolutions adopted by the
Board of Directors on July 28, 1997, the following amendment is
hereby made to the Atlantic Richfield Company 1985 Executive Long-
Term Incentive Plan (the "Plan"), effective July 28, 1997.
1. Article I, Sections 2(b) and 2(e) of the Plan are amended to
read as follows:
"(b) "Change of Control" means:
(i) Consummation (F1) of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of ARCO (a "Business
Combination"), unless, in each case, following such Business
Combination:
(1) All or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the then outstanding shares of common stock
(the "Outstanding Common Stock") of ARCO and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors (the
"Outstanding Voting Securities") of ARCO immediately prior
to such Business Combination beneficially own, directly or
indirectly, more than 60 percent of, respectively, the then
Outstanding Common Stock and the combined voting power of
the then Outstanding Voting Securities entitled to vote
generally in the election of directors, as the case may be,
of the corporation resulting from such Business Combination
(including, without limitation, a corporation which, as a
result of such transaction, owns ARCO or all or
substantially all of ARCO's assets either directly or
through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Business Combination, of the Outstanding Common Stock and
Outstanding Voting Securities, as the case may be;
(2) No Person (excluding any corporation
resulting from such Business Combination or any employee
benefit plan (or related trust) of ARCO or such corporation
resulting from such Business Combination) beneficially owns,
directly or indirectly, 25 percent or more of, respectively,
the then Outstanding Common Stock of such corporation
resulting from such Business Combination or the combined
voting power of the then Outstanding Voting
- ------------
(F1) In the case of the vesting of Restricted Stock and Performance-
Based Restricted Stock under Article III, Section 4(c) and the
vesting of Stock Options under Article II, Section 2(f), "approval
by the shareholders of the Company" shall be substituted for
"consummation" and the exceptions under clause (1) thru (3) shall
not apply.
- 1 -
<PAGE>
Securities of such corporation, except to the extent that such
ownership existed immediately prior to the Business Combination;
and
(3) At least a majority of the members of
the board of directors of the corporation resulting from
such Business Combination were members of the Incumbent
Board at the time of the execution of the initial agreement,
or of the action of the Board, providing for such Business
Combination; or
(ii) The acquisition by any Person of beneficial
ownership (within the meaning of Rule 13d-3 or Rule 13d-5
promulgated under the Exchange Act) of 25 percent (F2) or more
of either (A) the Outstanding Common Stock of ARCO or (B)
the Outstanding Voting Securities of ARCO; provided,
however, that for purposes of this Subsection (ii), the
following shall not constitute a Change of Control: (aa)
any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by ARCO or any corporation
controlled by ARCO; (bb) any acquisition by ARCO or any
increase in beneficial ownership resulting solely from an
acquisition by ARCO; (cc) any acquisition by any corporation
pursuant to a Business Combination which complies with
clauses (1), (2) and (3) of Subsection (i); or (dd) any
acquisition directly from ARCO pursuant to a transaction
(other than a Business Combination) approved by the Board
after July 28, 1997; and provided, further, that in any
event, without regard to the manner in which the level of
ownership is attained, the ownership by any Person of 40
percent or more of the Outstanding Common Stock of ARCO or
Outstanding Voting Securities of ARCO shall constitute a
Change of Control; or
(iii) Individuals who, as of July 28, 1997,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to such date whose election, or nomination for
election by ARCO's stockholders, was approved by a vote of
at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, except that
any such individual whose initial assumption of office
occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person shall not be considered
an Incumbent Director (F3); or
- --------------------
(F2) This percentage shall be 40% in the case of the Vesting of Prospective
Dividend Share Credits under Article IV, Section 4 of the Plan and the
Pro Rata Payment of Contingent Restricted Stock under Article III,
Section b(v) of the Plan.
(F3) This provision shall not apply in the case of the Vesting of Prospective
Dividend Share Credits under Article IV, Section 4 of the Plan and the
Pro Rata Payment of Contingent Restricted Stock under Article III,
Section b(v) of the Plan.
- 2 -
<PAGE>
(iv) Approval by the stockholders of ARCO of a
complete liquidation or dissolution of ARCO."
"(e) "Company" means ARCO and its Subsidiaries."
2. Sections (aa), (bb), (cc), (dd), (ee), (ff) and (gg) are added to
Article I, Section 2 of the Plan to read as follows:
(aa) "Anticipatory Change of Control" means (i) the
execution of an agreement or a written document which, if
the subject thereof were consummated, would result in a
Change of Control; (ii) a public announcement by any Person,
including ARCO, of an intent to take an action(s) which, if
consummated, would result in a Change of Control; or (iii)
the delivery of a signed, written statement to the Trustee
of the Change of Control Trust and ARCO's Independent
Auditor by the Chief Financial Officer and General
Counsel of ARCO that an Anticipatory Change of Control is in
effect, provided that, with respect to any of the above
three circumstances, the Anticipatory Change of Control
shall not be effective until approved by either the Board or
the Executive Committee of the Board.
(bb) "ARCO" means Atlantic Richfield Company, its
successors and assigns.
(cc) "Change of Control Trust" means the trust
established by ARCO to provide for the payment of any
benefits, in whatever form is required, under this Plan on
and after a Change of Control.
(dd) "Exchange Act" means the Securities Exchange Act
of 1934, as amended.
(ee) "Person" means any individual, corporation, firm
partnership, governmental body, entity or group and shall
include any person within the meaning of 13(d)(3) or
14(d)(2) of the Exchange Act.
(ff) "Prospective Dividend Share Credits" means the
amount of Dividend Share Credits which would be earned with
respect to a Stock Option during the period commencing on
the date of a Change of Control and concluding on the
expiration date of the term of the Stock Option, assuming
(i) no exercise of the Option; (ii) a fixed Fair Market
Value of a share of Common Stock, and (iii) a fixed
dividend, on such Common Stock. Both Fair Market Value and
the dividend rate shall be determined as of the record date
of the quarterly dividend on such Common Stock immediately
preceding the Change of Control.
(gg) "Special Plan Administrator" means the entity
designated in the Change of Control Trust as having full
Administrative powers under Article I, Section 3 of the Plan
on and after a Change of Control, including, but not limited
- 3 -
<PAGE>
to, all interpretive and decision powers reserved to the
Committee or the Subcommittee prior to a Change of Control."
3. Article I, Section 3 of the Plan is amended to read as follows:
"Section 3. Administration of the Plan
(a) Prior to a Change of Control, the Plan shall
be administered by the Committee or, where specified herein,
by the Subcommittee. The Committee or Subcommittee, as
applicable, is authorized to interpret the Plan, to adopt
such rules and regulations as may from time to time be
deemed necessary for the effective operation of the Plan,
and to act upon all matters relating to the granting of
awards under the Plan. Any determination, interpretation,
construction or other action made or taken pursuant to the
provisions of the Plan by or on behalf of the Committee or
Subcommittee, as applicable, shall be final, binding and
conclusive for all purposes and upon all persons including,
without limitation, the Company, the Company's shareholders
and Eligible Employees and their respective successors in
interest.
(b) On and After a Change of Control the Plan
shall be administered by the Special Plan Administrator
which shall have all powers of the Committee and
Subcommittee described under Subsection 3(a).
(c) No member of the Committee or Subcommittee,
or the Special Plan Administrator, as applicable, shall be
personally liable by reason of any contract or other instrument
executed by such member, or on such member's behalf, in such
member's capacity as a member of the Committee or Subcommittee
nor for any mistake of judgment made in good faith, and the
Company shall indemnify and hold harmless each member of the
Committee or Subcommittee, as applicable, and each other officer,
employee or director of the Company to whom any duty or
power relating to the administration or interpretation of
the Plan has been delegated, against any cost or expense
(including counsel fees) or liability (including any sum
paid in settlement of a claim with the approval of the
Committee or Subcommittee) arising out of any act or
omission in connection with the Plan unless arising out of
such person's own fraud or bad faith.
(d) Subject to the terms and limitations of
Subsection 1(a) of Article II and Section 1 of Article III
of the Plan, the Committee or Subcommittee or Special Plan
Administrator, as applicable, may at the time of the annual
grants, make adjustments within the Total Investment Value
applicable to all Eligible Employees provided that any
reallocation resulting from changes in individual grants
may be made only to Eligible Employees in the same Salary
Grade Level as the affected individuals, so that the Total
Investment Value by Salary Grade Level may not be exceeded."
- 4 -
<PAGE>
4. Article II, Section 2(d)(i) of the Plan is amended to read as follows:
"(i) If an optionee's Employment is terminated prior to
entitlement to exercise all or a portion of a grant of Stock
Options, the optionee will immediately be entitled to exercise
all of his or her outstanding Stock Options during the remainder
of the term of the Stock Options, if the optionee's termination
is due to (1) total and permanent disability, (2)
termination, other than for cause, with a right to an
immediate allowance under a retirement plan of the Company,
or (3) involuntary termination, other than for cause."
5. Article II, Section 2(f) of the Plan is re-lettered as Section
2(g) and a new Article II, Section 2(f) is added to read as follows:
"(f) Change of Control. Upon the occurrence of a
Change of Control, a Participant shall be entitled to
exercise any outstanding Stock Options which are not
otherwise exercisable immediately preceding such a Change of
Control."
6. Article III, Section 3(b)(iii) of the Plan is amended to
read as follows:
"(iii) If a grantee's Employment is terminated
within 24 months following the grant of Performance-Based
Restricted Stock due to (1) total and permanent disability;
(2) involuntary termination, other than for cause; (3)
termination, other than for cause, with a right to an
immediate retirement allowance under a retirement plan of
the Company; or (4) death, such stock shall be deemed vested
on the day the grantee's employment is terminated."
7. Article III, Section 3(b)(v) is added to the Plan to read as follows:
"(v) (1) If a Change of Control occurs following any
grant of Contingent Restricted Stock, any actual award of
Performance-Based Restricted Stock to which the grantee
would otherwise be entitled in respect of such Contingent
Restricted Stock, based on the Company's Performance Ranking
for the year of the Performance Period on the date of the
Change of Control under the applicable Restricted Stock
Payment Schedule, shall be satisfied by the grant of shares
of Common Stock. The number of shares shall be determined
by multiplying the Contingent Restricted Stock by a
fraction, the numerator of which is the number of completed
months (or fraction thereof) in the Performance Period as of
the date of the Change of Control and the denominator of which
is the number of months in such Performance Period.
(2) If a Change of Control under Article I,
Section 2(e)(i), other than by reason of the application of
Footnote 1, occurs, and a grantee of Contingent Restricted
Stock is terminated by the Company prior to a Person attaining
an ownership level of 40 percent or more of the Outstanding
Shares of Stock of the Company or the corporation resulting
from a Business Combination,
- 5 -
<PAGE>
as defined in Article I, Section 2(e)(i), any actual
award of Performance-Based Restricted Stock to which the
grantee would otherwise be entitled, based on the Company's
performance ranking as of the earlier of (A) the end of the
Performance Period, or (B) the occurrence of a Change of Control
by reason of the application of Footnote 1 to such subsection,
shall be multiplied by a fraction, the numerator of which is
the number of completed months (or fraction thereof) of the
Performance Period as of the grantee's date of termination
and the denominator of which is the number of months in such
Performance Period, with payment to be made in shares of
Common Stock."
8. Article III, Section 4 of the Plan is amended to read as follows:
"Section 4. Waiver and Lapse of Restrictions
(a) Restrictions upon vesting and transferability
of Restricted Stock may be permitted to lapse as originally
provided by the Subcommittee at the time of grant, as
provided in the Plan or otherwise as the Subcommittee may
determine in its sole discretion.
(b) Restrictions upon vesting and transferability
of Performance-Based Restricted Stock shall lapse as
provided in Section 3 of this Article III.
(c) All shares of Restricted Stock and
Performance-Based Restricted Stock shall be deemed vested
upon the occurrence of a Change of Control."
9. Article III, Section 5(b) of the Plan is amended to read as follows:
"(b) If, prior to the end of a Performance Period, a
grantee of Contingent Restricted Stock terminates Employment
due to (i) total and permanent disability; (ii) involuntary
termination, other than for cause; or (iii) termination,
other than for cause, with a right to an immediate
retirement allowance under a retirement plan of the Company,
the grantee shall be paid the value determined under
Subsection 5(a) of this Article III as of the date of the
grantee's termination, with payment to be made in shares of
Common Stock at the end of the Performance Period."
10. Article IV, Section 4 is added to the Plan to read as follows:
"Section 4. Prospective Dividend Share Credits
(a) Upon the occurrence of a Change of Control,
the Prospective Dividend Share Credits allocable to an
optionee, as of the date of the Change of Control, shall be
credited to the account of the optionee, as described in
Subsection (b), and no further Dividend Share Credits shall
accrue with respect to such optionee.
- 6 -
<PAGE>
(b) As of the date of a Change of Control, the
Dividend Share Credits that would be earned under each
outstanding Stock Option for the remaining term of the Stock
Option shall be calculated, assuming no further exercises of
the Stock Option and using the dividend rate and the Fair
Market Value of a Share of Common Stock as of the most
recent dividend record date relating to Common Stock. The
resulting number of Dividend Share Credits shall be added to
the Dividend Share Credits held in the Participant's account
as of the date of the Change of Control and all such
Dividend Share Credits shall be treated as credited under
Article I, Subsection 2(n) of the Plan, and the Participant
shall be entitled to payment in shares of Common Stock of
the number of Dividend Share Credits relating to an exercise
of Stock Options in accordance with Article IV of the Plan."
11. Article V, Section 2 of the Plan is amended to read as follows:
"Section 2. Adjustment in Terms of Award
In the event of a reorganization,
recapitalization, stock split, stock dividend, distribution
of assets other than pursuant to a normal cash dividend,
combination of shares, merger, consolidation, rights
offering, split-up, split-off, spin-off or any other change
in the corporate structure or shares of the Company (other
than a Change of Control), the Committee may, in its
discretion, after consultation with the Chairman of the
Board and the President of ARCO, make appropriate
adjustments to reflect such event in respect of (a) the
limitation in Section 1 of this Article V on the maximum
number of shares of Common Stock upon which Stock Options
may be granted or which may be the subject of a grant of
Restricted Stock or Performance-Based Restricted Stock, (b)
the number of shares of Common Stock covered by, and the
exercise price per share applicable to, outstanding Stock
Options, (c) the number of shares of Common Stock covered by
outstanding awards of Restricted Stock or Performance-Based
Restricted Stock, and (d) the number of outstanding Dividend
Share Credits allocated to optionees' accounts. In the
event that the Committee, after consultation with the
Chairman of the Board and the President of ARCO, determines
that, because of a change (other than a Change of Control)
in the Company's business, operations, corporate structure,
capital structure, assets or manner in which it conducts
business, which it deems to be extraordinary and material,
the terms of awards theretofore made are no longer suitable
to the objectives which the Committee sought to achieve when
it made such awards, it may modify the terms of any or all
of such awards in such manner as it may decide is advisable;
provided, however, that no award may be modified in a manner
which would be inconsistent with the intent of Subsection
1(b) or Section 9 of this Article V, or which would result
in an increase in the shares of Performance-Based Restricted
Stock."
12. Article V, Section 9 of the Plan is amended to read as follows:
- 7 -
<PAGE>
"Section 9. Amendment and Discontinuance of the Plan
The Board may amend or discontinue the Plan as it
shall from time to time consider desirable, provided that:
(a) Except as provided under Subsection (c)
hereof, no amendment shall, without further approval by the
holders of a majority of the shares which are represented in
person or by proxy and entitled to vote on the subject at a
meeting of shareholders of ARCO, change the terms of the
Plan so as to increase the maximum number of shares upon
which Stock Options may be granted or which may be issued
upon a grant of Restricted Stock or Performance-Based
Restricted Stock or the payment of Dividend Share Credits
from the amounts described in Subsections 1(a) and (b) of
this Article V, reduce the minimum Stock Option price, or
extend the maximum Stock Option period.
(b) Except as provided under Subsection (c)
hereof, no amendment, discontinuance or termination shall
deprive persons who hold shares of Contingent Restricted
Stock, Restricted Stock or Performance-Based Restricted
Stock, or who are entitled to exercise Stock Options, or to
receive a settlement of Dividend Share Credits pursuant to
the terms and provisions of the Plan, of their rights with
respect thereto.
(c) No amendment may be made during the period of
an Anticipatory Change of Control, except that the Board may
amend the Plan during such a period as it may deem
necessary, upon advice of counsel, to further the interest
of the Company, its shareholders and the Plan participants
regarding any legal requirements that may be applicable to a
Change of Control, including, without limitation,
satisfaction of any requirements relating to accomplishing
"Pooling" treatment under applicable accounting rules, and
any Securities Exchange Act rules or tax rules.
(d) The Plan may not be amended or terminated on
or after a Change of Control until all Outstanding Stock
Options have been exercised or expired and all payments of
Contingent Restricted Stock under the Plan have been made."
13. Article V, Section 11 of the Plan is amended to read as follows:
"Section 11. Term of Plan
No Stock Options or Contingent Restricted Stock,
Restricted Stock or Performance-Based Restricted Stock may
be granted after February 24, 2007."
- 8 -
<PAGE>
Executed this 27th day of March, 1998.
ATTEST ATLANTIC RICHFIELD COMPANY
/s/ ARMINEH SIMONIAN /s/ JOHN H. KELLY
BY: ______________________ BY:_________________________
John H. Kelly
Senior Vice President
Human Resources
-9 -
AMENDMENT NO. 11
TO
ATLANTIC RICHFIELD COMPANY
1985 EXECUTIVE LONG-TERM INCENTIVE PLAN
______________________________________
Pursuant to the power of amendment reserved therein, the
following amendment is hereby made to the Atlantic Richfield
Company 1985 Executive Long-Term Incentive Plan (the "Plan"),
effective as of July 28, 1997.
1. Article I, Subsections 2(c), (d), (s), (w), (aa), (cc) and
(gg) of the Plan are amended to read as follows:
"(c) "Committee" means the Organization and
Compensation Committee of the Board."
"(d) "Common Stock" means the common stock of ARCO
having a par value of $2.50 per share."
"(s) "Restriction Period" means the period specified by
the Subcommittee at the time of grant of Restricted Stock
during which the restriction and forfeitability conditions
described under Section 2 of Article III apply."
"(w) "Subsidiary" means any corporation, the majority
of the voting stock of which, or any partnership or joint
venture, the majority of the profits interest or capital
interest of which, is owned directly or indirectly by ARCO
or a member of the Comparison Group, as applicable."
"(aa) "Anticipatory Change of Control" means (i)
the execution of an agreement or a written document which,
if the subject thereof were consummated, would result in a
Change of Control; (ii) a public announcement by any Person,
including ARCO, of an intent to take an action(s) which, if
consummated, would result in a Change of Control; or (iii)
the delivery of a signed, written statement to the Trustee
of the Change of Control Trust and ARCO's Independent
Auditor by the Chief Financial Officer of ARCO and General
Counsel of ARCO that an Anticipatory Change of Control is in
effect, provided that, with respect to any of the above
three circumstances, the Anticipatory Change of Control
shall not be effective until approved by either the Board or
the Executive Committee of the Board."
"(cc) "Change of Control Trust" means the trust
established by ARCO to provide for the payment of any
benefits, in whatever form is required, under this Plan on
and after a Change of Control."
"(gg) "Special Plan Administrator" means the entity
designated in the Change of Control Trust as having full
Administrative powers under Article I, Section 3 of this Plan
on and after a Change of Control, including, but not limited
- 1 -
<PAGE>
to, all interpretive and decision powers reserved to
the Committee or the Subcommittee prior to a Change of
Control."
2. Article I, Subsections 2(hh) and 2(ii) are added to the Plan
to read as follows:
"(hh) "Board" means the Board of Directors of ARCO
established by the Articles of Incorporation of ARCO.
(ii) "Executive Committee" means the Executive
Committee of the Board as established by the Board of
Directors of ARCO."
3. Article I, Subsections 3(c) and (d) of the Plan are amended
to read as follows:
"(c) No member of the Committee or Subcommittee, as
applicable, shall be personally liable by reason of any
contract or other instrument executed by such member, or on
such member's behalf, in such member's capacity as a member
of the Committee or Subcommittee nor for any mistake of
judgment made in good faith, and the Company shall indemnify
and hold harmless each member of the Committee or
Subcommittee, as applicable, and each other officer,
employee or director of the Company to whom any duty or
power relating to the administration or interpretation of
the Plan has been delegated, against any cost or expense
(including counsel fees) or liability (including any sum
paid in settlement of a claim with the approval of the
Committee or Subcommittee) arising out of any act or
omission in connection with the Plan unless arising out of
such person's own fraud or bad faith.
(d) Subject to the terms and limitations of Subsection
1(a) of Article II and Section 1 of Article III of the Plan,
the Committee or Subcommittee, as applicable, may at the
time of the annual grants, make adjustments within the Total
Investment Value applicable to all Eligible Employees
provided that any reallocation resulting from changes in
individual grants may be made only to Eligible Employees in
the same Salary Grade Level as the affected individuals, so
that the Total Investment Value by Salary Grade Level may
not be exceeded."
4. Article II, Section 2(d)(i) of the Plan is amended to read
as follows:
"(i) If an optionee's Employment is terminated prior to
entitlement to exercise all or a portion of a grant of Stock
Options, the optionee will be entitled to exercise all of
his or her outstanding Stock Options during the remainder of
the term of the Stock Options, if the optionee's termination
is due to (1) total and permanent disability, (2)
termination, other than for cause, with a right to an
immediate allowance under a retirement plan of the Company,
or (3) involuntary termination, other than for cause."
5. Article III, Subsection 5(c) of the Plan is amended to read
as follows:
"(c) If, prior to the end of a Performance Period, a
grantee of Contingent Restricted Stock terminates Employment
due to death, the designated beneficiary
- 2 -
<PAGE>
of the grantee or, absent a beneficiary designation, his or
her estate, shall be paid the value determined under Subsection
5(a) of this Article III based on the Company's Performance
Ranking for the year of the Performance Period which ends closest
to the grantee's death, with payment to be made in shares of Common
Stock as soon as practicable following the end of such year
of the Performance Period."
6. Article V, Section 1 of the Plan is amended to read as follows:
"(a) The number of shares of Common Stock upon which
Stock Options may be granted or which may be the subject of
a grant of Restricted Stock or Performance-Based Restricted
Stock during a calendar year shall be eight-tenths of one
percent (0.8%) of the total issued and outstanding shares of
Common Stock as of December 31 of the immediately preceding
calendar year. Any shares of Common Stock available for
grant that are not made the subject of a grant during a
calendar year, or portion thereof, will be available for
grant in any subsequent year, or portion thereof, until the
end of the term of the Plan. The number of available shares
described in the preceding sentences is subject to
adjustment as provided in Section 2 of this Article V. The
shares shall be made available from authorized Common Stock,
issued or unissued, or from Common Stock issued and held in
the treasury of the Company as shall be determined by the
Committee. Shares of Common Stock subject to Stock Options,
shares of Restricted Stock and shares of Performance-Based
Restricted Stock that are canceled pursuant to Subsection
2(d) of Article II, Section 2 of Article III or Section 5 of
Article III of the Plan may be reallocated under the Plan.
(b) No individual may be granted more than 500,000
shares of Restricted Stock, Performance-Based Restricted
Stock and/or Stock Options, regardless of the combination,
in any calendar year."
7. Article III, Subsection 3(b)(v)(2) of the Plan is amended to
read as follows:
"(2) If a Change of Control under Article I, Section
2(b)(ii), other than by reason of the application of
Footnote 2, occurs, and a grantee of Contingent Restricted
Stock is terminated by the Company after a Person attains an
ownership level of 25 percent but before a Change of Control
occurs for any other reason or any Person attains an
ownership level of 40 percent or more of the Outstanding
Shares of Stock of the Company or the corporation resulting
from a Business Combination, as defined in Article I,
Section 2(b)(i), any actual award of Performance-Based
Restricted Stock to which the grantee would otherwise be
entitled, based on the Company's performance ranking as of
the earlier of (A) the end of the Performance Period, or (B)
the occurrence of a Change of Control by reason of the
application of Footnote 2 to Article I, Section 2(b)(ii),
shall be multiplied by a fraction, the numerator of which is
the number of completed months (or fraction thereof) of the
Performance Period as of the grantee's date of termination
and the denominator of which is the number of
- 3 -
<PAGE>
months in such Performance Period, with payment to be made
in shares of Common Stock."
Executed this 5th day of November, 1998.
ATTEST ATLANTIC RICHFIELD COMPANY
/s/ ARMINEH SIMONIAN /s/ JOHN H. KELLY
BY: ______________________ BY: _________________________
John H. Kelly
Senior Vice President
Human Resources
- 4 -
The following Amendment No. 6 to the Atlantic Richfield Special
Terminiation Allowance Plan contains the current change of control
provisions applicable to the Company's executive management team,
including its five most highly compensated executed officers.
AMENDMENT NO. 6
TO
ATLANTIC RICHFIELD
SPECIAL TERMINATION ALLOWANCE PLAN
_____________________________
Pursuant to the power of amendment reserved therein, the Atlantic
Richfield Special Termination Allowance Plan (the "Plan") is
hereby amended effective as of July 28, 1997.
1. Section 3, Paragraphs 3.15, 3.19 and 3.20 of the Plan are
amended to read as follows:
"3.15 "Anticipatory Change of Control" means (a)
the execution of an agreement or a written document
which, if the subject thereof were consummated, would
result in a Change of Control; (b) a public
announcement by any Person, including ARCO, of an
intent to take an action(s) which, if consummated,
would result in a Change of Control; or (c) the
delivery of a signed, written statement to the Trustee
of the Change of Control Trust and ARCO's Independent
Auditor by the Chief Financial Officer of ARCO and
General Counsel of ARCO that an Anticipatory Change of
Control is in effect, provided that, with respect to
any of the above three circumstances, the Anticipatory
Change of Control shall not be effective until approved
by either the Board or the Executive Committee of the
Board."
"3.19 "Change of Control Trust" means the trust
established by ARCO to provide for the payment of any
benefits, in whatever form is required, under this Plan
on and after a Change of Control."
"3.20 "Special Plan Administrator" means the entity
designated in the Change of Control Trust, which shall
have full administrative powers under this Plan on and
after a Change of Control, including, but not limited
to, all interpretive and decision powers reserved to
the Administrator prior to a Change of Control."
2. Section 3, Paragraph 3.21 of the Plan is deleted and
Paragraph 3.22 is renumbered as Paragraph 3.21. New Paragraphs
3.22, 3.23 and 3.24 are added to the Plan to read as follows:
- 1 -
<PAGE>
"3.22 "Board" means the Board of Directors of ARCO
established by the Articles of Incorporation of ARCO.
3.23 "Executive Committee" means the Executive Committee of
the Board as established by the Board of Directors of
ARCO.
3.24 "Severance Plan" means the Special Termination
Allowance Plan, Enhanced Retirement Plan (i.e., an
improvement over the basic retirement allowance
applicable for a limited period of time such as the
"5+5" Enhanced Retirement Plan benefit under the
Atlantic Richfield Retirement Plan II effective October
2, 1998) and/or such other severance plan generally
applicable to Employees involuntarily terminated by the
Company, as such plan or plans may be in effect on the
date immediately preceding a Change of Control."
3. Section 6 of the Plan is amended to read as follows:
"SECTION 6
ALLOWANCES PAYABLE FOLLOWING A CHANGE OF CONTROL
6.1 Notwithstanding any other provision of the Plan,
if an Employee is terminated from employment under any
of the circumstances described under Paragraph 6.2,
during the Benefit Trigger Window, the Employee will be
paid a single cash allowance as described in Paragraph
6.3, as soon as possible following such termination.
6.2 Notwithstanding any other provision of this Plan,
Termination of Employment shall mean termination of
employment, other than due to voluntary termination or
for cause, during the Benefit Trigger Window and shall
include such additional circumstances of termination as
described in footnote 4 of Paragraph 6.3.
6.3 Following Termination of Employment of a Participant, as
described in Paragraph 6.2, a cash payment, as chosen by the
Participant, shall be made as prescribed under the following
payment schedule:
- 2 -
<PAGE>
PARTICIPANT CHOICES:
(1) Multiple of Covered
EMPLOYEE Compensation (F1); or CONSTRUCTIVE
GRADE (2) Severance Plan (F2) TERMINATION (F3)
-------- ------------------------ ----------------
EO & E1 3 x CC or Severance Yes
E2 3 x CC or Severance Yes
E3 2 x CC or Severance Yes
E4 1-1/2 x CC or Severance Limited
10 & 9 1 x CC or Severance Limited
8 & below 1/2 x CC or Severance Limited
6.4 Special Tax Allowance
(a) A special cash allowance shall be paid to each
Employee in Grades E0, E1, E2 and E3 as soon as
possible following the end of the Benefit Trigger
Window in an amount equal to any excise tax which
has been assessed (or, in the sole discretion of
the Special Plan Administrator will be assessed)
against the Employee under 4999 ("Golden
Parachute Payments") of the Internal Revenue Code
(the "Code").
(b) As to all Employees Grade E4 or below,
the Special Plan Administrator shall, in its sole
discretion, review the value of all benefits paid
and which may become payable to a Participant from
time-to-time and determine whether (i) the total
amount should be frozen at the amount which
constitutes a "Parachute Payment" under
2806(b)(2) of the Code, and if so, the allocation
of payments to achieve such result or (ii) the
total amount should be continued to be paid to the
Participant pursuant to plan provisions without
regard to the application of 2806 and 4999 of
the Code. If the amount under Subparagraph (i)
exceeds the amount paid under Subparagraph (ii)
after assessment of any applicable taxes
- ----------------
(F1) Covered Compensation ("CC") is the amount equal to the sum of (a)
annualized Pay and the average of any lump sum merit adjustments
of Pay for each of the prior 3 years, plus (b) either (i) the
average of the non-Atlantic Richfield Annual Incentive Plan (AIP)
bonus for each of the prior 3 years, or (ii) the greater of the
AIP Award for each of the prior 3 years or the current year Target
AIP Award (as defined in the AIP).
(F2) Severance Plan ("Severance") means the Severance Plan as defined
in Section 3.22 of this Plan.
(F3) Constructive termination means an Employee's election to terminate
following management's request to (a) accept a demotion to a lesser
job, (b) accept a reduction in Pay plus the Target AIP Award (as
defined in the AIP) by 10% or more, or (c) accept a new principal
place of work which would qualify for deduction of moving expenses
under Section 217 of Internal Revenue Code. For all Employees below
Grade E3, constructive termination is limited as follows: Only
provisions (b) and (c) apply and for Employees Grade 8 or below,
provision (b) shall apply only to Pay.
- 3 -
<PAGE>
under Section 4999 of the Code, the excess amount
shall be paid to the Participant as soon as
possible following such determination by the
Special Plan Administrator."
4. Section 9, Paragraph 9.3(a) of the Plan is amended to read as follows:
"9.3 (a) During an Anticipatory Change of Control
the Plan may not be amended, except to the extent
required to comply with legal requirements, upon
advice of Counsel, and in any event, such
amendment may be adopted only by the Board. Any
such amendment during a period of an Anticipatory
Change of Control which reduces benefits or
otherwise adversely affects the payment of
benefits to which an Employee would otherwise be
eligible or would have been eligible upon
termination of employment following a Change of
Control, as determined in the sole discretion of
the Special Plan Administrator, shall provide
substantially equivalent value in replacement
thereof to the Participant."
Executed this 5th day of November, 1998.
ATTEST ATLANTIC RICHFIELD COMPANY
/s/ ARMINEH SIMONIAN /s/ JOHN H. KELLY
BY: ______________________ BY: ____________________________
JOHN H. KELLY
Senior Vice President
Human Resources
- 4 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Income and the Consolidated Balance Sheet and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> $1,070
<SECURITIES> 232
<RECEIVABLES> 975
<ALLOWANCES> 0
<INVENTORY> 502
<CURRENT-ASSETS> 3,086
<PP&E> 38,437
<DEPRECIATION> (18,938)
<TOTAL-ASSETS> 26,230
<CURRENT-LIABILITIES> 5,303
<BONDS> 4,511
0
1
<COMMON> 815
<OTHER-SE> 7,741
<TOTAL-LIABILITY-AND-EQUITY> 26,230
<SALES> 7,755
<TOTAL-REVENUES> 8,101
<CGS> 6,840
<TOTAL-COSTS> 7,250
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 326
<INCOME-PRETAX> (47)
<INCOME-TAX> (128)
<INCOME-CONTINUING> 60
<DISCONTINUED> 1,186
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,246
<EPS-PRIMARY> $3.88
<EPS-DILUTED> $3.81
</TABLE>
